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Technical Analysis USDCAD : 2015-11-06

No change in Canadian dollar outlook

Canadian dollar strengthened following the oil rally that started October 28. Labor market report on Friday is expected to indicate unemployment remained unchanged in October. Will the positive momentum carry the Canadian dollar higher against the US dollar?

Bank of Canada left the interest rate unchanged at 0.5% at last policy meeting on October 21. At two previous meetings in July and January this year the central bank cut the interest rate by 0.25% to stimulate the economy on the backdrop of falling prices for oil, Canada’s major export. Canadian economy contracted 0.1% in the second quarter of 2015 over the previous quarter following 0.2% contraction in the first three months of the year. But in June the GDP for the month recorded growth of 0.4%, followed by 0.3% and 0.1% monthly growths in July and August respectively. The falling growth rates hint at a possible return to contraction if the pattern continues. The USDCAD pair recorded gains in every month since May except for October. Canadian employment report will come out on Friday November 6 at the same time with Nonfarm payrolls in US. The expectations are the unemployment rates will remain unchanged at7.1% in Canada and 5.1% in US. At the same time Federal Reserve policy makers have indicated they expect the US economy will continue growing and with reduced risks for US growth from economic slowdown in emerging markets they will be considering raising interest rates at their meeting in December. Bearish outlook for oil due to continued oversupply in global oil market together with divergences in US and Canadian economic growth and monetary policies contribute to bullish outlook for the USD/CAD pair.

USDCAD

USDCAD has been rising on the daily timeframe since May. It corrected downward as oil rallied a week ago. The Parabolic indicator has formed a sell signal while the pair has formed a bullish engulfing candlestick pattern. The RSI-Bars oscillator is rising and has not reached the overbought zone. The Donchian channel is tilted upward. We expect the bullish momentum will continue after the price closes above the upper bound of Donchian channel at 1.32729. A pending order to buy can be placed above that level, with the stop loss below the last fractal low at 1.30361. After placing the pending order, the stop loss is to be moved to the next fractal low, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop loss level without reaching the order, we recommend canceling the position: the market sustains internal changes which were not considered.

 

Position Buy
Buy stop above 1.32279
Stop loss below 1.30621


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