Looking For a Volatile Currency Pair to Trade Next Week? Keep an Eye on the USD/CAD
Eric Furstenberg • 4 min read
Hello, traders! The markets have been moving, and hopefully, you’ve been making some profits. One instrument which hasn’t been moving much, though, is the USD/CAD. This pair has been consolidating for a couple of weeks already and has formed a type of a triangle/wedge formation.
So why would we bother looking at such an inactive currency pair? Well, because we know that these consolidation phases never last forever. When a pair has spent a long time consolidating or ranging, this often leads to an eventual breakout which can be very powerful. It’s almost like the pair builds up energy with which it erupts violently, shattering the old range parameters. Let’s look at a few charts:
USD/CAD – A Dormant Volcano
USD/CAD Daily Chart
It seems like this pair is coming to a point where a big move could take place. In the week that lies ahead of us, this pair will face some really important economic news out of Canada. The first event is the Core Retail Sales number on Wednesday at 13:30 GMT. This number is expected to come in at 0.8%. If the actual reading comes in at 0.8% or higher, the Canadian Dollar could benefit from it. The Retail Sales number will be released at the same time as the Core Retail Sales number.
The next important data out of the region is on Friday at 13:30 GMT – the Core CPI and CPI numbers (Consumer Price Index numbers). Higher than expected CPI numbers are positive for the Canadian Dollar. If you’re trading the Canadian Dollar next week, you need to be aware of these events.
Something else we need to keep in mind when we look at Canadian Dollar pairs, is the oil price, of course. As you may know, the Canadian Dollar and the oil price are highly correlated because oil production plays an important role in the Canadian economy. The oil extraction process in Canada is more expensive than in many other parts of the world, so the oil price plays a really significant role in the health of the Canadian economy, and of course in the strength of the Canadian Dollar. Let’s look at an oil price chart:
WTI Crude Oil – Moving Sideways as Well
WTI Crude Oil Daily Chart
As you can see in this chart, the oil price has been trading sideways for several weeks. It doesn’t look like a breakout is going to happen here soon, but you never know. If oil supply levels heap up once again, the oil price might have a hard time breaking to fresh highs soon. While OPEC (Organization of the Petroleum Exporting Countries) are putting in an effort to reduce oil production on their end, the Americans and many other oil producers are doing their best to boost oil production. The oil supply glut isn’t expected to subside anytime soon, hence the outlook for the oil price remains sideways, and even bearish. This could put pressure on the Canadian Dollar. Conversely, if the oil price manages to conquer higher ground, it could support the Canadian Dollar. Take note of the oil price if you’re trading the Canadian Dollar!
Concerning the USD/CAD, we need to keep an eye on U.S. economic data as well. We have Existing Home Sales numbers on Wednesday at 15:00 GMT, and New Home Sales numbers on Friday at 15:00 GMT. However, the most important event is expected to be the release of the FOMC meeting minutes on Wednesday at 19:00 GMT.
Let’s look at a few other instruments, shall we?
EUR/USD – Still Negative
EUR/USD Daily Chart
The EUR/USD closed below its 20-day exponential moving average on Friday. The bulls don’t seem too eager to defend their territory at the moment. If this pair continues to trade below the 20-EMA, we could possibly see a retest of the yearly lows in a few weeks’ time. My bias remains bearish for now, but we can’t rule out some sideways price movement in the near-term.
AUD/USD – Getting Exhausted
AUD/USD Daily Chart
The AUD/USD is still trading in a very large range. It looks like this pair is really struggling to reach the range top, though. Let’s zoom in a little bit to get a better feel of the pair’s performance over the last few days:
AUD/USD Daily Chart
Although the pair is still trading above its 20-day exponential moving average, it is showing some signs of exhaustion. You can see that the bulls are having a tough time pushing the price higher, and the range top is likely to hold as resistance.
In the first chart of the AUD/USD, you might have noticed that the distance of the last wave is really large – about 570 pips. From a cyclical point of view, a reversal is likely over here, especially because the price is near the range top, and already reacting negatively to that zone of resistance.
On Tuesday we have RBA (Reserve Bank of Australia) meeting minutes at 00:30 GMT. This can cause substantial volatility, so beware of this event risk. Later in the day, there is a speech by RBA Governor Philip Lowe at 21:30 GMT which also has the potential to move the Aussie.
One last thing, if you’re planning on trading on Monday, you need to be mindful that it’s a holiday in the U.S. and in Canada. U.S. holidays have a way of limiting market volatility, so keep this in mind. On the other side of the scale, unexpected market shocks can be more dramatic when liquidity is thin, so don’t think that holidays like these carry less risk than the other normal trading days.
Have a prosperous week guys!