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Keep an Eye on the Robust Canadian Dollar

Yesterday the US Dollar performed better than it did on Wednesday. Nevertheless the Canadian Dollar outperformed the Greenback by far yesterday, gaining about eighty pips against it. So why is the Canadian Dollar so resilient? The main reason is Crude Oil which posted a bullish engulfing day yesterday. With Canada being so dependent on oil production and export; and obviously oil prices, the Canadian Dollar is highly correlated to oil prices. Hence the abundant CAD strength. Where there is movement in markets, there is opportunity to earn profits. The USD/CAD has been carving out higher highs and higher lows for roughly the last 45 trading days, but yesterday this pattern was broken. Look at the daily chart below:

USD/CAD Daily Chart


Higher highs and higher lows indicate a healthy uptrend. When this pattern gets broken, buyers need to reconsider their game plan. What we see in the chart  above raises the question whether the market has set an important top on the 27th of July (the last higher high that was formed on the chart above). What we do know for sure is that the bulls are being overpowered by the bears, at least over the near term. So how can we make a few pips out of the pair? Let’s look at an hourly chart:

USD/CAD Hourly Chart


If we see a corrective retracement up to the sell zone pictured in the chart above, this might be a bounce you’d want to sell. When I say corrective, I mean that a weak bounce is preferred. Ideally you want to see some wicks to the upside indicating that the retracement is losing steam. Entries may be taken between 1.30800 and 1.30300. I would use a stop loss of between 60 and 90 pips depending on the level of entry. Remember to always do your own analysis of a trading setup and observe how price reacts to certain key levels. If oil continues to rebound, the CAD might strengthen further. If we see the oil price slide lower again, the CAD could weaken again. Just remember that the USD/CAD is a currency pair and not a single currency. The US Dollar’s strength or weakness should be included in the calculation however. We have some important economic data out of the United States later today which could perhaps move the market. In fact there are many releases out of the US today, but probably the most important ones are the Advance Retail Sales numbers at 12:30 GMT and the University of Michigan Confidence survey at 14:00 GMT. The Baker Hughes US Rig Count at 17:00 GMT could have an effect on the oil price which has a big influence on the Canadian Dollar of course. We also have Industrial Production numbers out of China early this morning which could influence the market’s risk appetite, oil prices, and also the USD/CAD, however these numbers would need to differ quite a lot from the expected numbers to have a notable effect on the above. Let’s look at a few other major pairs:


AUD/USD Daily Chart


Here we see two consecutive daily candles with rather long wicks to the upside which should serve as a warning to bullish market players to be careful here. I would not be surprised if we saw a correction unfold from here over the next few days. Countertrend players might be interested in shorting the pair at the current price, or even better, at a 50% or 61.8% retracement of yesterday’s daily candle. Stop placement would be 20 pips above yesterday’s high, with a target at about 0.76300.


GBP/USD Hourly Chart


Momentum on the GBP/USD is clearly bearish, and the price remains capped by the 20 EMA. We are still seeing lower highs and lower lows in the exchange rate. Retail sentiment is still extremely bullish, which suggests a further decline in Cable.

Other news releases

Furthermore we have some German economic news releases which might move the Euro, namely CPI and GDP numbers out at 06:00 and 09:00 GMT later today, with Italian GDP numbers out at 08:00 GMT.

Good luck with your trading!

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Eric Furstenberg
Lead Educator
Eric Furstenberg is a successful entrepreneur and fund manager with years of trading experience in the Forex, commodity, and stock index markets. He is a seasoned trader who employs advanced trading methods to complement his portfolio and also manages a private investment fund.
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