- The US dollar has rallied early against its northern neighbor, but there is still a significant amount of resistance at the 1.34 level in the Canadian dollar.
- At this point, if we can break above there on a daily close, then I anticipate that the dollar will probably go toward the 1.35 level above, which is an area where we have the 50-day EMA and the 200-day EMA converging.
- That causes a lot of technical noise and therefore a lot of potential resistance. It's also a large round number, which of course the market tends to like as well. We have bounced rather significantly from a rather important low.
It'll be interesting to see how this plays out. It's probably going to be tied to the crude oil market. And the fact that although the Federal Reserve is likely to cut rates, signaling that perhaps they're worried about the economy, the reality is that the Canadian economy is essentially parasitic to the US economy, meaning that the Canadian economy is highly levered to what's going on in its southern neighbor, the trade between the two countries is pretty extreme. Anybody who's been to the Ambassador Bridge or especially the Peace Bridge in Buffalo can tell you just how many semi-trucks there are. So, if the United States has economic trouble, the Canadian economy does. And therefore, traders tend to punish the Canadian dollar due to the inability to export. We'll have to see how this plays out.
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Short-term
In the short term, I'll be looking at the 1.34 level and seeing whether or not we can break out to offer another 100 pips to the upside. That being said, keep in mind that the USD/CAD does tend to be rather choppy, so you have to be very patient. It is a scenario where the US leads the way and Canada follows. After all, if you are a Canadian producer and your largest customer suddenly finds itself struggling, there’s no way your business will continue in the same way it had previously. Also, oil has that knock-on effect on the Loonie to begin with, even though the United States actually produces more than enough oil for itself but the correlation is still there.
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