Potential signal:
- I am a buyer of USD/CAD at 1.3950, with a stop loss at 1.3875, and a target of 1.4150.
The US dollar fell against the Canadian dollar during trading on Monday, as we may be getting a little bit of a pullback in order to find enough value. After all, the US dollar has been absolutely ripping apart the Canadian dollar over the last 2 weeks, gaining well over 200 pips. At this point, the market is pulling back from a shooting star on Friday, and it is now testing the top of the previous consolidation area.
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That previous consolidation area, basically extending from the 1.37 level on the bottom, and the 1.39 level on the top. In other words, breaking out of that and now pulling back to the 1.39 level suggests to me that we are trying to figure out whether or not there is momentum in the US dollar and whether or not we can continue to see it strengthen against the Canadian dollar, which I think eventually does happen.
USA versus Canada
Currently, you need to look at both economies and understand that while the United States stumbled a little bit recently, the GDP numbers have come out much hotter than anticipated, the weekly Unemployment Claims number came out better than anticipated, and the Federal Reserve isn’t quite convinced that slashing rates at a rapid pace is the best move forward. Conversely, Canada has a whole plethora of problems, actually shedding jobs to the tune of 65,000 at the latest employment announcement. Beyond that, there are a lot of problems with the United States right now, which while the doomsayers have said that the United States is going to stumble, they failed to realize the 25% of Canada’s GDP is directly from exports into the USA.
That being said, one of the reasons this pair has an absolutely skyrocket is the fact that the goods in the USMCA agreement that Trump signed during his first presidency are still covered by that agreement. However, there are other goods that the United States is currently trying to get the Canadians to adjust. Meanwhile, the Canadian employment situation is getting more and more dire. In other words, even if the Federal Reserve is cutting rates, it’s likely that the Bank of Canada will find itself doing the same thing down the road. I believe that if we can bounce from here, we will probably continue toward the 1.42 level
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