Potential signal:
- I am buying the breakout above 1.4150, with a stop loss at the 1.4050 level, and a target of 1.4350.
The US dollar continues to see a lot of momentum against the Canadian dollar, as traders are finally trading the differences between the two economies, instead of simple Middle East headlines.
USD/CAD
The US dollar rallied a bit during the early part of the trading session here on Thursday, and it looks like it is about to break out to the upside against the Canadian dollar. This is a simple trade, looking at the difference between the United States economy and the Canadian one.
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The Bank of Canada looked a little bit neutral, possibly even dovish, in some of the statements this week, but at the same time, the Federal Reserve is very likely to be forced to raise interest rates by another 0.25 basis point this year. If that's going to be the case, then the market is likely to continue to go to the upside, perhaps to the 1.43 level. Short-term pullbacks, I think, continue to see support near the 1.40 level underneath as a floor.
Macroeconomic Drivers and Shifting Correlations
All things being equal, this is a market that, despite the fact that rates in America are dropping, is just betting on the US economy. I think that makes a lot of sense, and I think it continues.
Falling oil has a little bit of a secondary effect, but keep in mind this is a pair that, quite frankly, doesn't pay as much attention to oil as it once did. That's a correlation that has died, mainly due to the fact that the United States produces so much.
So, at this point in time, I do think we are going to see a bigger move to about 1.43, possibly 1.44. This is a pair that tends to grind, so keep that in mind, but you get the swap paid to you at the end of every day, and that's part of what drives this as well. Keep in mind, Friday is a holiday in the United States for Juneteenth, so that will influence liquidity.
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