USD/CAD in a new Bullish Sentiment?

USD/CAD in a new Bullish Sentiment?

10:00 AM EST

Cha-ching! And congrats to Invest Diva students who reached our bullish target of 1.3250 for USD/CAD. As I mentioned in my “Currency Strength Ranking after Black Monday” article, Mr. Loonie came in 6th position just before Mr. Aussie and Kiwi in terms of strength due to concerns over demand for commodities. On the other hand, the US has got back to printing positive numbers after “Black Monday” which has helped Ms. USA (aka US dollar) to gain her losses back on the forex dance floor. The reversal can mostly be seen in the EUR/USD pair, however the USD/CAD seems to have the next potential for a long term trade. Here are essential points of Invest Diva Diamond Analysis as Ms. USA dances against Mr. Loonie.

Economic Points

US side

Thursday’s New York session started with a positive kick as the dollar was bolstered by better-than-expected US GDP and jobless claims figures. The U.S. economy grew faster than initially thought in the second quarter on solid domestic demand, showing fairly strong momentum that could still allow the Federal Reserve to hike interest rates this year (hip-hip, hooray!)

Gross domestic product expanded at a 3.7 percent annual pace instead of the 2.3 percent rate reported last month, the Commerce Department said on Thursday in its second GDP estimate.

Keep in mind that the Fed will keep a close eye on the gradual growth of the US economy and a one-time positive data may not be sufficient, considering the concerns over China could still be on the table. However, the month of September would put an end to low summer days liquidity which could push the economy further up.

Canada Side

Canada’s real GDP fell for the fifth consecutive month, declining by 0.2% in May after posting a 0.1% downtick back in April. Canada’s jobs data for July was unremarkable on the surface since the Canadian economy only had a net gain of 6.6K jobs for the month.
Canada’s New Housing Price Index (NHPI) for June increased by 0.3% to 113.0 (112.7 previous) due to large gains in Ontario. The total value of building permits for June, meanwhile, jumped by a whopping 14.8% to CA$7.7 billion after dropping by 13.9% back in June, which is why forex traders understandably jumped on the Loonie when the reading was released. As for retail sales, sales value was up by 0.6% to CA$43.2 billion in June, which is slower than May’s 0.9% increase. An increase is still an increase, though, so it’s all good.
Canada’s CPI only increased by 0.1% month-on-month for the month of July (+0.2% previous), but the year-on-year reading was more impressive since it advanced by 1.3% after posting a 1.0% increase previously.

Overall, Canada’s most recent economic figures aren’t too bad, but the string of decreases in GDP growth is rather worrying. Some analysts are even claiming that Canada is already in a recession or on the verge of heading into one, which would likely cause some forex traders to take a bearish stance on Mr. Loonie. And while the BOC did state that “Canada’s economy is undergoing a significant and complex adjustment” to be less dependent on oil and other energy commodities, that will take some time and oil prices hovering near six-and-a-half-year lows isn’t exactly helping, I’d say.

Technical Analysis

After reaching our target of 1.30  and 1.3250 respectively, and breaking above the neckline of  a saucer bottom chart pattern at 1.28 on the monthly forex dance floor, the US dollar versus the Canadian dollar (USD/CAD pair) is now moving up with a new-born bullish sentiment. The pair remains above the Ichimoku Cloud and we could even see drops back to the 23% Fibonacci and the saucer neckline at 1.29 before the next wave of bullish dance moves. Looking at the monthly chart, I just discovered  a potential double bottom pattern dating back to 2008 and 2011 and the neckline just  broke.

Our next targets are set at 1.3450 and 1.37 in extension.

Alternative Scenario

From a long term percpective, a break below 1.22 would change our outlook to bearish with 1.1950 as first alternative target

Suggested stops and limits

Support Levels Turning Point Resistance Levels
1.28 1.3250 1.3450
1.22 1.30 1.37

*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.