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- Today, the Canadian dollar is rising. It is now ripping higher and is by far the best performing G10 currency. The action has sent the USD/CAD down 110 pips to 1.2633.
- This is a flow-driven move in a thin market; someone need Canadian dollars right away. This is especially true given that oil is down 1.2 percent today and global markets are down. This year’s equities markets are also witnessing a unique dynamic. Canada will be closed on Monday to commemorate the New Year’s holiday, while markets in the United States will be open. This might be a factor in this move, and it also suggests that CAD liquidity on Monday will be reduced.
- In general, such moves tend to unravel as markets regain their full vigour. The USD/CAD is also finding some support at 1.2600.
- Despite rate rises, the NZDUSD falls in 2021, but finds technical support at the lows.
- The year’s low in December remained at 38.2 percent and the lower trend line.
- In 2021, the NZDUSD stepped downward in turbulent up and down trading. The declines occurred despite rate rises by the Reserve Bank of New Zealand in the second part of the year. It is expected that the central bank would want to maintain this trend in 2022. During the week of February 21st, the year’s high hit 0.74642. That peak halted ahead of the 2017 high within a high severe swing region.
- This swing zone was located between 0.74367 and 0.74847. Those swing highs included September 4, 2016, September 17, 2017, January 21, 2018, and February 11, 2018.
- The price did not return to that level until this year’s early-year move upward. Sellers did, however, pull against the level, and the market immediately reversed, never to threaten the area again in 2021. That level will most likely be retested at some point (sometime), but when it does, it will have another peak, which will increase the level’s significance (file that level away as an important upside target someday).
Following that selling high, the price action drifted downward for the rest of the calendar year.
Despite the drop in 2021, the pair was only able to correct to the lengthier moving averages, a lower trend line, and the 38.2 percent retracement level. Price tested that region four times in four weeks, and lows reached the 38.2 percent lower extreme target twice in two weeks, but support held and the price rallied.
As a result, 2021 was a year of correction towards MA and initial retracement support.
If the MAs are rebroken in 2022, the bias will turn more to the negative, with the 38.2 percent at 0.67012 being the next significant objective to reach and pass through.
- When we look at some of the important topics for 2022, it’s difficult to find one that might harm the dollar’s overall picture. The first item on the list is tightening by major central banks. And, in this sense, the Fed is among the frontrunners, and may be the most active. Three rate rises are planned for next year, the first of which should occur by June at the latest.
- The Fed has shifted swiftly from “this is temporary” to “we need rate rises asap,” which has agitated the market. The long end of the yield curve remains unconcerned, but it will be interesting to watch how aggressive the Fed decides to be next year and where they see the current cycle ending.
- If the highest ceiling is set at 2%, it will be difficult to get yields enthusiastic, in my opinion. However, this may be an argument that emerges only in the second half of next year. For the time being, the question is how much the Fed can keep its promise.
- And, if all goes as planned, the dollar should be able to maintain its resilience as a result of the Fed’s policy stance. Another important issue to watch out for in the next year is China’s fight against the epidemic. If this results in further supply constraints, it will bolster the preceding argument. And, if it leads to a significant global slowdown and risk trades correct, it will be a scenario in which the dollar can shine, i.e. a flight to safety. As a result, one may claim that the dollar grin hypothesis will benefit the currency in the early part of next year.
- Or, at the very least, it should give some tangible support for the dollar, making it more robust. The major caveat is that if the Fed fails to follow the script, which is improbable. It will be determined by a variety of things, including China and the pandemic, but the dollar should at least hold up.