In our October 23rd report, we had forecast a rally in the USDCAD pair, which was trading at around 1.2600. Additionally, we had mentioned that two trades – one each in the Forex and binary market – may be opened by us to gain from the uptrend. In line with our prediction, the pair reached 1.2900 levels in a week and we booked profits in both the trades. The USDCAD pair underwent a correction last week to close near 1.2740. We anticipate the currency pair to rally in the days ahead due to the reasons given below.
During the US Presidential campaign, Trump announced his intention to renegotiate the NAFTA agreement with Mexico and Canada. Trump had repeatedly called the NAFTA agreement a ‘disaster’ and wants to bring manufacturing back to the US. Further, the US President also sees the agreement as one-sided, affecting the economy of the US. Thus, the negotiations that began last week may strain the relationship between the US and Canada, while resulting in a decreased investment in the latter.
Notably, the US negotiators have called for a sunset clause in the NAFTA agreement. That means any new agreement would be subject to re-negotiation after a given time period – five years in this case. Canada has already complained about the lack of flexibility on the part of the US. Thus, negotiations may turn awkward, leading to a negative impact on Canada’s trade as well. Thus, analysts have cautioned a probable build-up of selling pressure on the Canadian dollar.
In the US, the Census Bureau report showed a 5.9% increase in building permits to 1.30 million in October, from an upwardly revised 1.23 million in September. Analysts had expected building permits of 1.25 million. Likewise, housing starts increased to 1.29 million in October, from 1.14 million in the prior month. That was the highest level since October 2016. Economists had expected a figure of 1.19 million.
In particular, single-family home starts increased to 877,000, the fastest pace since February, from 833,000 in the earlier month. Thus, political developments and economic data favor a rally in the USDCAD pair.
Technically, the USDCAD pair is forming an inverted head and shoulder pattern. Further, the RSI of the moving average is moving up towards the bullish zone. Thus, we expect the current uptrend to continue in the short-term.
As a currency trader, we may establish a long position in the USDCAD pair near 1.2750. To avoid large losses from speculation, we would certainly place a stop-loss order below 1.2660. If the uptrend continues as expected, then we will sell our long position near 1.2930.
In addition to the long position in the currency market, we may also invest in a call option offered by a binary broker such that the option remains active for a period of one week. The option will be bought when the pair trades near 1.2750 in the spot market.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
