On the 8th of December, the USD/CAD was able to trade near a low of 1.26100, which essentially tested depths not seen since the 19th of November. After touching this low early in the second week of this month, the USD/CAD then displayed a rather strong upwards move and touched the 1.27230 mark early on the 10th of December. However, in the immediate aftermath of inflation data from the U.S which showed the rate touching 40-year highs, the USD/CAD turned volatile. A low of 1.26810 was seen and then a swift move higher to the 1.27420 ratio was demonstrated, and as Forex began to calm, the USD/CAD essentially ended Friday near 1.27170.
The above is written to demonstrate the volatility the USD/CAD has produced the past week. It is also brought forth to show that there is a vast difference between day trader considerations compared to the tactics of institutional financial houses.
Day traders are often reacting to the market, while many financial houses like to think of themselves as proactive. The point being that even though the data from many logical viewpoints should have created immediate buying of the USD/CAD because it would be assumed the U.S Federal Reserve needs to raise interest rates sooner rather than later, the pair actually weakened for a bit after the inflation data before reversing higher.
Technical traders need to understand that financial houses likely placed their USD/CAD positions before the announcement of the data on Friday. Meaning, the immediate reactions in the market were driven by programmed trading and that technical speculators had to go along for the ride that ensued. After going into the weekend below Friday’s highs, the USD/CAD opened slightly weaker this morning and touched the 1.27060 mark early today, but since then the Forex pair has crept higher again and is now trading within sight of Friday’s highs.
Traders should expect choppy trading today as financial institutions try to interpret the data still. Short-term speculators may simply want to aim for quick hitting trades aiming for close by support and resistance levels to be challenged. Traders are encouraged not to be overly ambitious today and cash out profitable trades before they vanish into thin air as the prospect of sudden reversals looks strong in what could prove to be nervous conditions near term.
Canadian Dollar Short-Term Outlook
Current Resistance: 1.27470
Current Support: 1.27080
High Target: 1.28110
Low Target: 1.26640
