Last week, the Canadian dollar cut back and recovered some of its recent losses against the U.S. dollar. The U.S. dollar has been very strong lately, and if we look at last week’s performance, it’s pretty impressive that the Canadian dollar was able to gain about 55 heights against the Buck. This doesn’t seem anything significant, but if we take into account the losses of some other major currencies against the dollar, they should definitely be taken into account. For example, the euro lost about 210 seeds against the US dollar last week, while the Japanese yen returned more than 130 seeds. The pound lost about 215 pips and the Swiss franc about 115 pips.
Oil prices rose moderately last week, likely contributing to the Canadian dollar’s gains. We have very important event risks this week that could move the Canadian dollar, and perhaps market participants have already begun to exchange rates on some more Canadian dollar strengths that could result from next week’s events. We’ll cover all of these events, but before we go there, let’s first look at some technical aspects of USD / CAD:
USD / CAD diagram
If you look closely at this chart, you will notice that the pair traded above the 200-day moving average for a few days, but was unable to achieve traction over this very important technical indicator. On Friday, the pair closed firmly below the moving average again, and also below my favorite short-term moving average, the 20-day exponential moving average. This company, which closes under 20-EMA, conveys the idea that it would probably take a lot of buying power from the bulls to gain dominance again in the short term. With that in mind, it seems that the path of least resistance can be really disadvantageous when we look at the coming week. Let’s look at a USD / CAD hourly chart:
USD / CAD hourly chart
It’s easy to see the declining momentum on this short-term chart. Let’s look at the same chart, showing only the 20-EMA:
USD / CAD hourly chart
Here, 20-EMA has become resistance, and the price has been rejected several times over the past two trading days. Notice what great opportunities these redemptions for 20-EMA offered to sell the pair. I like such retracement because they most likely offer trading options and can be traded with fairly tight stop losses.
On Wednesday, the BOC (Bank of Canada) interest rate decision and monetary policy report is at 14:00 (GMT). At 12:30 p.m. (GMT) on Friday, there are Canadian retail sales and CPI (consumer price index) figures. Market participants will monitor these developments, but in particular the interest rate decision and the monetary policy report. This may give you some tips on how well the Canadian economy is doing and what to expect in terms of future interest rates. BOC is expected to keep its interest rate unchanged at 0.5%. I am sure the Canadian economy is feeling relief from the recent rise in oil prices. Keep in mind that Canada is a very large oil producer, and low oil prices can really hurt the Canadian economy. Let’s look at an oil chart:
Weekly graph of American oil
This is called the inverse head and shoulder pattern, which is the reverse pattern. The idea is that breaking the neckline would trigger the pattern, which would mean that the price of oil could rise even further. The Canadian dollar is closely related to the price of oil, and an increase in this hard commodity would certainly support the Canadian dollar.
Traders who are interested in participating in short positions in USD / CAD should wait until the price first forms a retracement. If we look at the recent downturn in a time frame as small as an hourly chart, it is clear that this recent downward move has been slightly prolonged. I don’t like to sell a financial instrument if its price is far below 20-EMA as it is currently on USD / CAD (hourly chart).