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Jan 24 - 08:55 AM

USD/CAD - Charts To Watch-USD/CAD Bias, Yen Driver, Dollar Positioning

By Justin McQueen  —  Jan 24 - 06:50 AM

Jan 24 (Reuters) - Chart 1: USD/CAD short-run bias remains higher leading into Feb 1 U.S. President Donald Trump appears to have taken a softer tone towards China regarding tariffs, though the same cannot be said for Canada and Mexico. The president has reiterated his threat that he could impose 25% tariffs on both countries as soon as Feb 1. In turn, the Canadian dollar has taken the threat in its stride as USD/CAD pulls back from recent highs. The looming threat of tariffs should keep the pair underpinned in the short-run and much how USD/CAD reacted to the initial threat in late November, the pair has held the Trump reaction level at 1.43. Chart 2: BoJ hiked delivered but U.S. yields remain the key driver for USD/JPY The Bank of Japan delivered a well telegraphed rate hike at its January meeting, taking the key policy rate to 0.5% from 0.25% – now at the highest level since 2008. However, given the plethora of reports pointing towards said outcome, the impact on the yen was muted. With the clearing of BoJ event risk, USD/JPY should predominantly take its cue from the direction of U.S. yields, as has been the case in recent months. Chart 3: Dollar at risk should crowded longs lack patience The biggest challenge for dollar bulls in the short-run is positioning. The last few months have seen a significant increase in dollar exposure and rightly so given the prevailing narrative. However, that positioning has become crowded – net longs sit at the highest level since November 2015 – and with the avoidance of shock-and-awe policies such as day one tariffs under Trump, some of that tariff risk premium embedded in the dollar has been unwound. FX markets are in limbo, which leaves dollar vulnerable to a cleansing of positions. Though it is difficult to forcefully lean against the dollar, the more time passes without aggressive tariffs, the more likely it is that the dollar will be exposed to positioning squeezes.
USD/CAD hourly chart


USD positioning


USDJPY vs yields


(Justin McQueen is a Reuters market analyst. The views expressed are his own.)

Source:
London Stock Exchange Group | Thomson Reuters

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