USD/CAD: Potential trade opportunities for both bulls and bears alike

The forex battle for the 49th parallel is shaping up to be hot and heavy through the final full trading week of the year.

Canada

The forex battle for the 49th parallel is shaping up to be hot and heavy through the final full trading week of the year.

As we noted yesterday, tomorrow’s FOMC meeting is, outside of Brexit developments, the biggest event to watch this week, with traders uncertain whether the US central bank will extend the maturity of its asset purchases, expand purchases outright, or stand pat. Any time the market is uncertain about the outcome of an event, it means that a certain subset of traders will be wrong, so we’re expecting volatility in the US dollar regardless of what Powell and Company decide to do tomorrow.

In addition to that key event, traders will also get the latest updates on retail sales out of the US and Canada, Canadian inflation data and US PMI figures, so USD/CAD is poised to see some potentially big moves over the next three days.

Technically speaking, USD/CAD has been trending consistently lower since peaking above 1.4600 in mid-March. Since then, the pair has fallen nearly 2,000 pips to trade near 1.2700, its lowest level in more than 30 months. As of writing, the unit is seeing its third consecutive trading day within Thursday’s 125-pip range, signaling short-term consolidation and the potential for a breakout heading into the latter half of the week:

Source: TradingView, GAIN Capital

The near-term lower highs and higher lows creates a classic “bearish pennant” formation, which, as the name suggests, implies a higher probability of a break lower and continuation of the established trend. However, with rates oversold on the daily chart and major event risks on the horizon, traders may want to wait for confirmation that the pair is breaking lower before considering new short positions.

Alternatively, if we see the Fed stand pat and US data outperform Canada’s over the remainder of the week, there may be an opportunity for nimble traders to buy USD/CAD for a counter-trend bounce toward the 1.2900 or 1.3000 through Christmas week.

Either way, forex traders should have USD/CAD on their radars heading into the holidays!

Learn more about forex trading opportunities.


More from Forex

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.