At the end of last week, when the Americans liquidated an Iranian general in Iraq, the foreign exchange market showed a “uniform” reaction: commodity currencies, protective assets and the dollar that joined them actively rose in price, while risky currencies with such activity lost their positions.
However, to date, the American-Iranian conflict has different effects on ceratin dollar pairs. In particular, the pair EUR/USD and GBP/USD continue to grow against the background of a decline in the dollar index, while the yen paired with the US currency froze in place, waiting for the development of a geopolitical conflict. But commodity currencies are actively “skimming the cream” from the current situation, following the oil market. Panic moods do not subside here – oil traders are seriously concerned about the possible consequences of the US-Iran confrontation. As a result, a barrel of Brent oil for the first time in many months (to be more precise, since September last year) broke the 70-dollar mark. The Canadian dollar, in turn, for the first time since the fall of 2018, collapsed in pair with the greenback in the area of the 29th figure. All previous similar attempts to reduce suffered a fiasco – in July last year, the USD/CAD bears were able to pull the pair to the base of the 30th figure, but buyers immediately seized the initiative, returning the price to the range of 1.31-1.33.
It is worth noting that the downward dynamics of the USD/CAD pair began at the end of November. Take a look at the weekly chart of the pair – having reached the local price peak (1.3318), the pair began to slowly but surely slide down, ending last year at 1.3065. Recent events in Iraq only gave impetus to the southern trend, which was formed a few weeks ago.
“Loonie” strengthened, mainly due to the wait-and-see position of the Canadian regulator. Despite the Fed’s interest rate cut, the Bank of Canada maintained the status quo in its policy. Even after the release of extremely weak data on the growth of the Canadian economy, Stephen Poloz sounded very optimistic about prospects. In particular, the last meeting of the Bank of Canada ended positively: according to the members of the regulator, the world economy is showing “signs of stabilization”. The Central Bank also pointed to a reduction in recessionary risks and a significant increase in the level of investment spending in the third quarter. Also, the regulator optimistically commented on the price dynamics of the commodity market (including the oil market), noting that the Canadian dollar remains “relatively stable”.
Despite the growing geopolitical tensions, many positive fundamental factors for the Canadian have now increased their influence. The US and China have agreed on the first phase of the deal (the signing ceremony is due to take place on January 15), thereby reducing the risk of another escalation of the trade war. While the US-Iran conflict is still playing into the hands of the Canadian currency, due to the growth of the oil market. Now, none of the experts can say what scenario will develop further events. The parties are voicing threats against each other, while the world community is trying to reduce the degree of tension. Iran has completely withdrawn from the “nuclear deal” and has put missile forces on alert throughout the country. Before that, US President Donald Trump warned that if Tehran attacks the Americans, Washington is ready to strike at Iranian facilities “very fast and very strong” blow – at least 52 targets. In turn, the result of the mediation mission of Qatar, according to analysts, was close to zero.
The situation remains in limbo, pushing up oil prices and thus providing indirect support to commodity currencies. So, according to one of the possible scenarios, Iran will block the Strait of Hormuz during the development of the conflict, after which the price of Brent oil will soar to $150 per barrel. Although this scenario looks (at the moment) unlikely, panic sentiment continues to dominate the black gold market.
Thus, the southern trend for the USD/CAD pair is now completely at the mercy of oil traders, who, in turn, are guided by the dynamics of the Iranian-American conflict. If geopolitical tensions continue to increase, exerting a corresponding influence on oil prices, the Canadian dollar will continue to strengthen against the dollar. Other fundamental factors will have little effect on the behavior of the “loonie”.
From the technical point of view, the USD/CAD pair is under significant pressure, and on almost all “senior” timeframes. On the D1 and W1 charts, the pair is located between the middle and lower lines of the Bollinger Bands indicator, which also indicates the priority of the southern movement. The pair demonstrates a pronounced bearish trend, which is confirmed by the main trend indicators – Bollinger Bands and Ichimoku, which on all the above timeframes has formed its strongest bearish signal “Parade of lines” – all the indicator lines are above the price chart, thus demonstrating the pressure on the pair. Additional confirmation of the bearish scenario is the oversold MACD and Stochastic oscillators. To determine the main goal of the southern movement, go to the monthly timeframe: here we focus on the lower line of the Bollinger Bands – this is the price of 1.2850.