Canadian Dollar Remains Weak on Housing Bubble Concerns

Canadian Dollar Remains Weak on Housing Bubble Concerns
December 14, 2016

On November 30th, we had forecasted a decline in the USDCAD pair and had recommended going short at 1.3450 levels, with a target of 1.3250. To binary traders, we had suggested investing in a low or below option contract with an expiry period of one week. Invariably, all the reputed binary brokers offer a low or below contract (equivalent of put option). So, there would not be any need to search for a suitable broker of choice. The currency pair closed at about 1.3275, thereby resulting in a profit from the suggested trade. Now, at the current exchange rate of 1.3050, the USDCAD pair looks to be a good buy due to the below mentioned reasons.

Firstly, the market anticipates Fed to announce a rate hike on Wednesday. The recent rally indicates that the rate hike has been fully priced in. However, at the FOMC meeting, the US Fed usually adjusts their forecasts of the GDP growth and the unemployment rate. The FOMC statement that follows the meeting will reveal the Fed’s outlook of the economy. Given the strong rally in the equity markets, the analysts anticipate the Fed to raise the US GDP forecast to 1.9% 0r 2.0% for 2016. The unemployment rate is also anticipated to be revised down to 4.7% for 2016. Such a scenario is expected to trigger another round of rally in the Greenback.

The University of Michigan reported that the consumer confidence index in the US hit a high of 98 in December, compared with an upwardly revised 93.8 in the previous month. The analysts were anticipating the consumer confidence level to touch a high of 94.3 this month. The overwhelmingly high consumer confidence will also keep the Greenback stronger during the holiday season.

The US economy can expand up to 3% in 2017, if Trump starts implementing his policies in a well-planned manner. On the other hand, Canada is expected to grow only by 1% next year. Based on the growth, to avoid overheating of the economy, the US Fed may even hike rates twice or even thrice next year. However, considering the job losses and brewing housing bubble in Vancouver and Toronto, the Bank of Canada cannot afford a rate hike at this point in time. A Fed rate hike would naturally attract investments in the US. Furthermore, the crude production cut is expected to be implemented only in January and still analysts are skeptical about Iran and Iraq. Thus, considering the above arguments, we anticipate the USDCAD to rise in the short-term.

The price chart points to the existence of strong support for the USDCAD pair at 1.3130. The zero reading of the stochastic oscillator indicates the possibility of a reversal in the asset pair.

USDCAD - Technical Analysis - 14th December 2016

Thus, a Forex trader can take a long position in the USDCAD pair near 1.3130, with a stop loss order at 1.3000. The long position can be diluted near 1.3280. Traders with risk appetite can wait to book profits at 1.3390.

A similar setup can be created in the binary market by purchasing an above or high contract. While the exchange rate can be anything below 1.3150, the expiry date of the high contract should fall on or around 21st of December.



Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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