The USD/CAD has initially pulled back just a bit during trading on Tuesday but continues to see strength as PMI numbers came out hotter than expected, and of course, the Bank of Canada is likely to remain steady at its interest rate announcement this coming week. With this in mind, I think it’s probably only a matter of time before the greenback takes out the C$1.38 level.
Ultimately, every time we pull back, there are buyers near the C$1.3650 level, as we have seen 4 or 5 days in a row. Ultimately, I do think that the market will see the 50-day EMA at the C$1.36 level as dynamic support as well, and although crude oil has helped the Canadian dollar against multiple other currencies, when it comes to money flowing to North America, unless it’s specifically oil driven, the US dollar reigns supreme. Furthermore, it’s likely that the interest rates in America will stay high much longer than in Canada, so it all comes together for higher rates.
I Remain Bullish
- Geopolitical concerns also help the greenback in general, and while money flows to North America, the first place it looks to park in New York. The Canadian economy is highly leveraged to the US economy, so while the Canadian dollar benefits from a strong US market, it doesn’t necessarily show itself against the greenback.
- That being said, if we were to break down below the 50-day EMA, then we might have a turnaround and attempt to break down toward the 200-Day EMA. That seems very unlikely at this point, unless of course, Ottawa surprises this week during the announcement.
- That seems very unlikely, as the economic data coming out of the Great White North continues to look as if it is softening.
If the market is the break above the C$1.38 level, then I think it opens up a move to the C$1.40 rather quickly as it has been an area of importance in the past. In fact, this could be the big mover this week depending on the announcement and the press conference.
Potential signal: I remain bullish of this pair, but I recognize that we might get a short-term pullback. On a move down to the 1.3650 level, I am more than likely going to be a buyer, just as I would be a buyer on a daily close above the 1.38 level. I do believe that we go looking to the 1.40 level before it’s all said and done. 1.35 would be my stop loss on a pullback, while on a break out my stop loss would be closer to the 1.3733 level.
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