What I Like About USD/CAD

I don’t often post trade calls on my blog (since I usually reserve that for BKT Subscribers). Last week, I called for a rally in EUR/GBP following the ECB and BoE rate decisions and now I am seeing a decent medium term opportunity in USD/CAD.

From a fundamental and technical perspective, the odds are skewed towards further gains in the currency pair. As economic data heads towards multi-decade lows, the greenback could continue to strengthen on safe haven plays. From a Canadian dollar perspective, oil prices have dropped 55 percent since the July peak, but the reaction in the Canadian dollar has been nominal. Economic data has been mixed but there is no question that the trajectory for growth is downwards. The merchandise trade balance is expected this week and I expect that and other data to be CAD bearish. There is no reason why the Canadian economy should be immune to the slowdown in growth.

Furthermore, there has been a VERY strong correlation between USD/CAD and the BAX (Canada’s Bank Acceptance Futures). According to the following chart, the implied yield of the June BAX contract continues to fall – this suggests that the correction in USD/CAD should be temporary.

Technically, I also really like the way USD/CAD is trading. It is holding well above the first standard deviation Bollinger Band and the 50% Fibonacci retracement of rally that took the currency pair from 1.03 to 1.3020.

If USD/CAD manages to clear 1.20, there is no major resistance until 1.24 to 1.25.

Photo: eSignal

About Kathy Lien 235 Articles

Kathy Lien is an Internationally Published Author and Chief Strategist of DailyFX.com, one of the world’s most popular online websites for currency research. Her trading books include the highly acclaimed, Day Trading the Currency Market: Technical and Fundamental Strategies to Profit form Market Swings (2005, Wiley); High Probability Trading Setups for the Currency Market E-Book (2006, Investopedia); and Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game (2007, Wiley). As Chief Currency Strategist at FXCM, Kathy is responsible for providing research and analysis for DailyFX, the research arm of FXCM. She also co-edits the BK Forex Advisor, an Investopedia.com Premium Service with Boris Schlossberg – one of the few investment advisory letters focusing strictly on the 2 Trillion/day FX market.

Kathy is also one of the authors of Investopedia’s Forex Education section and has written for Tradingmarkets.com, the Asia Times Online, Stocks & Commodities Magazine, MarketWatch, ActiveTrader Magazine, Currency Trader, Futures Magazine and SFO. She is frequently quoted by Bloomberg, Reuters, the Wall street Journal, and the International Herald Tribune and has appeared on CNN, CNBC, CBS and Bloomberg Radio. She has also hosted trader chats on EliteTrader, eSignal and FXStreet, sharing her expertise in both technical and fundamental analysis.

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