In our October 2nd report, we had forecast a rally in the USDCAD pair. Additionally, we had also expressed our wish to go long in the currency pair near 1.2390. The report also carried our interest to invest in a call option. As anticipated, a week later, the USDCAD pair closed above 1.2500 levels. That ensured a profit in our trades. Now, the USDCAD pair closed near the 1.2600 level last week. On the basis of details presented below, we forecast the uptrend to continue in the days ahead.
According to Statistics Canada, annual inflation surged 1.6% in September, after recording a 1.4% increase in the previous month. However, it was below analysts’ estimates of a 1.7% gain. On a m-o-m basis, the inflation rose 0.2%, versus the Royal Bank of Canada’s expectation of a 0.3% increase. In August, the CPI increased 0.1%. The annual inflation still remains below the 2% target of BoC. The IMF had recently trimmed its outlook for inflation to 1.7% in developed economies. Further, the BoC’s governor Poloz had stated that the central bank would consider the impact of recent rate hikes on the economy before raising interest rates again.
Statistics Canada also reported a 0.3% m-o-m decline in August retail sales, following a 0.4% growth in July, and below analysts expectation of a 0.5% increase. Excluding volatile items such as automobile and spare parts, the core retail sales declined steeper, with the reading down by 0.7%. The market had expected core retail sales to rise by 0.5%. The decline in retail sales could seriously hamper the chances of a third rate hike this year by the BoC.
In the US, the existing home sales increased 5.39 million in September, from 5.35 million in August, and greater than analysts’ expectation of 5.30 million. After three successive months of decline, the existing home sales reversed trend last month. The National Association of Realtors opined the figures could have been much higher if there were no supply shortages created partly due to the hurricane Harvey and Irma. The bounce back in existing home sales has considerably increased the odds of a Fed hike in December. Thus, economic data supports the Greenback to remain strong against the Canadian dollar in the short-term.
Technically, the RSI of the moving average is ascending towards the bullish zone. The bullishness is also confirmed by the new highs made by the momentum indicator. Additionally, the USDCAD pair has also broken the resistance at 1.2520. The currency pair is expected to face its next resistance at 1.2870.
We may trade the forecast by opening a long position in the Forex market. The long position will be established near 1.2600. A stop-loss order will be placed below 1.2500 to avoid large losses that may arise from unexpected volatility. We plan to sell the long position near 1.2840 levels.
To create a long position in the binary market, we may also purchase a call option as long as the pair trades near 1.2600 in the spot currency market. Further, a contract valid until November 1st is preferred for the option trade.
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.
