2 Reasons Why The Canadian Dollar is Getting Hammered Right Now
Eric Furstenberg • 3 min read
The USD/CAD has been trading pretty much sideways for about a year now. Yes, we’ve seen some powerful moves here and there, but nothing spectacular. Look at this weekly chart:
USD/CAD – The Bulls Are Storming
USD/CAD Weekly Chart
Now let’s look at a daily chart:
USD/CAD Daily Chart
And here is an hourly chart:
USD/CAD Hourly Chart
The last wave on this hourly chart is where we encounter today's price action, which brings us to the first reason of the recent Canadian Dollar weakness – today’s weak Canadian Retail Sales numbers. The Core Retail Sales number came in at a disappointing -0.3 percent versus an expected number of 0.6 percent while the Retail Sales number was -0.5 percent while 0.1 percent was expected.
The fact that the USD/CAD is trading above its 200-day moving average again, raises the question whether it has recently set an important low, or shall I say, a series of important lows. If we carefully examine the daily chart, it becomes evident that a strong support zone has been carved out over the last couple of months:
USD/CAD Daily Chart
Notice how often the price moved into this yellow support zone, but couldn’t break below it. This shows us that there was good value to be found in this area for the buyers and that they were keen on defending this zone. Needless to say, they have been successful in their efforts so far.
The last couple of dips into this support zone has actually formed an inverse head and shoulders pattern. I have highlighted it for you in the following chart:
USD/CAD Daily Chart
This inverse head and shoulders pattern doesn’t really have a well-defined neckline, hence the discretionary neckline in this chart. If the bulls keep their 'hooves' on the gas, this inverse head and shoulders pattern could play out really well over the next few weeks. I can’t wait to see where this setup will take us. If you’d like to learn more about how to recognize and how to trade head and shoulders patterns, take a look at our forex trading strategies section. The following link will take you directly to the Head and Shoulders trading strategy. Of course, an inverse head and shoulders setup is traded in almost exactly the same way as a normal head and shoulders setup. The only difference is that you will be buying instead of selling.
Let’s look at some other instruments…
EUR/USD – Wounded and Heading Lower
EUR/USD Daily Chart
The EUR/USD is still trading below its 20-day exponential moving average. It looks like the path of least resistance is to the downside at the moment. If you’re interested in selling this pair soon, you might be able to get in at a better price if you apply some patience. Perhaps we’ll get a rejection candle off the 20-EMA in the next week or two which should offer a splendid opportunity to go short.
WTI Crude Oil – Still Oversupplied
WTI Crude oil has been trading sideways for quite a while now. The price declined today, which is the second reason for Canadian Dollar weakness. As you might know, the Canadian Dollar and the oil price are positively correlated, which means that a declining oil price normally puts pressure on the Canadian Dollar. Although the weak Canadian Retail Sales numbers were the main cause of today’s Canadian Dollar weakness, the decline in the oil price has also put some pressure on the Canadian Dollar. Let’s look at a daily chart of the most traded commodity on this planet – oil:
WTI Crude Oil Daily Chart
Here we can see that the oil price is really struggling to move higher. This has been the case for several weeks already. Perhaps the path of least resistance lies to the downside, especially if we consider the oil supply glut which isn’t expected to abate soon. Keep an eye on the technicals over the next week or two. Perhaps we’ll get a splendid bearish rejection candle for a trigger to go short.
While I’m talking about oil, don’t forget that we’re not only providing forex signals, but also trading signals on many other instruments which include oil. We trade WTI Crude Oil, which is listed as USOil with most brokers.
Stay tuned for more market analysis, good luck with your trading!