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Technical Analysis USDCAD : 2016-03-04

Canadian dollar: reversal of downtrend at last?

Canadian dollar had been weakening with falling commodity prices. Oil prices have been edging up after major crude oil producers tentatively agreed to freeze output at January levels. Recent GDP report boosted the Canadian dollar as the economy recorded a surprise positive growth. The trade balance report today is expected to indicate the trade deficit edged higher. Will the Canadian dollar continue strengthening against the US dollar?

Canadian dollar strengthened as Canada’s economy recorded a surprise growth at 0.8% annualized rate in the fourth quarter according to GDP report released on Tuesday. Economists and policy makers expected zero growth. The growth came as a surprise in light of falling commodity prices which depressed exports and business investment. Economic growth in 2015 reached 1.2%, below the 2.5% rate in 2014. Another positive development was the rise in inflation to 2% year-over-year in January from 1.6% in the previous month. While growth slowed from 2.4% annualized rate in the third quarter, continued expansion of Canadian economy relieved the pressure on central bank policy makers to provide additional monetary stimulus through a rate cut at the next meeting on March 9. As Canadian economy adjusts to falling commodity prices, policy makers expect growth in Canada’s economy will reach 1.4% this year. Recent gains in oil prices after major oil producers expressed their support for the agreement between Saudi Arabia, Russia, Qatar and Venezuela to freeze output at January levels also were positive development for Canadian dollar: oil accounted for 19% of country’s total exports in 2015. Positive oil price dynamics and improved growth expectations are bullish for Canadian currency. Next Wednesday Bank of Canada interest rate decision will be announced, and on Friday labor market statistics will be released.

USDCAD

USDCAD reversed the rising trend and started falling on January 20 as oil prices hit multi-year lows and edged higher. The pair has breached below the support line of the rising trend and is falling. The Bollinger bands are starting to narrow, indicating declining volatility. The Parabolic indicator gives a sell signal. The RSI oscillator is falling and has crossed into the oversold zone, which doesn’t exclude continuation of the downtrend. The MACD indicator is below the signal line and the zero level which is a bearish signal. We expect the bearish momentum will continue after the price closes below the fractal low at 1.33851. It can serve as an entry point for a pending order to sell. The stop loss can be placed above the last fractal high at 1.38582. After placing the pending order, the stop loss is to be moved to the next fractal high, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop loss level at 1.38582 without reaching the order, we recommend canceling the position: the market sustains internal changes which were not taken into account.

 

Position Sell
Sell stop below 1.33851
Stop loss above 1.38582


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