USD/CAD Forecast: Continues to Plummet Against its Northern Neighbor

• The USD/CAD has fallen rather hard during the trading session on Friday, as we continue to see the greenback lose strength.
• The market is likely to continue to see the US dollar as a longer-term investment, but in the short term, everybody is reading a lot into the idea of inflation slowing down just a bit in America making the Federal Reserve change its attitude and trajectory.
• It’s nonsense of course because the Federal Reserve speakers have all been out talking against that, but at this point, the market will do what the market will do.

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The 200-Day EMA is closer to the 1.31 level, and therefore I think a lot of people will be looking at that as a potential target. If we get a turnaround, then that might be where the feedback picks up. Furthermore, the Canadian dollars highly levered to the oil market, which did have a positive session on Friday, but remains within a large consolidation area. Because of this, and of course the Toronto housing market coming unwound a bit, and the oil market rallying creates a bit of a “push/pull effect on the Loonie. Ultimately, I think we got a situation where you need to be very cautious, but I do believe it’s only a matter of time before you see buyers jump back into this market, perhaps when people realized that the Federal Reserve is in fact going to remain tight.

Volatility Ahead

If we break down below the 200-Day EMA, then technically that would be the end of the uptrend. In that scenario, we probably have a move down to the 1.28 level before it’s all said and done. I think the volatility will continue to be a major problem, just as we have seen in all markets. Quite frankly, volatile markets tend to cause volatile and aggressive moves like the one we have seen.

 Unfortunately, it’s not the type of situation where you can get too comfortable, because it’s likely that we will see a vicious turnaround sooner or later. Moves are not going to be gradual; they are going to be the kind to inflict the maximum amount of pain possible for retail traders and institutional traders alike. At this point, it looks like the correction will continue in the near term.

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