The Canadian dollar doesn't hurry to get involved in common growth against the American currency. Currently, the USDCAD pair is only 2.5% below its annual high, and it shows the rather small success of the Canadian currency against the yen, euro, pound, australian dollar, and so on. Of course, the Canadian dollar initially didn’t fall as much as the above-mentioned currencies, therefore, the potential for its strengthening is now much less. But other factors are preventing USDCAD from showing a significant decline.
There are two main reasons for the stability of USDCAD: the policy of the Bank of Canada and oil prices. The last meeting of the Canadian regulator strengthened the expectation of an upcoming pause in the cycle of monetary policy tightening despite the 0.5% increase in the key rate. And we can have the additional arguments to make this pause even today when the additional data on the inflation in November will be presented. If the statistics exceed expectations (as it was with the US), the Canadian dollar may become even weaker.
As for the oil prices, they have finally stopped to decrease and try to stabilize on actual levels. Support is provided by the easing of movement restrictions in China, as well as the first purchase of oil in the US strategic reserve after massive sell-offs in previous months.
Although two key factors of USDCAD dynamics are currently acting against each other, the medium-term trend remains. If the breakthrough of the trend is directed downward, the quotations will quickly move to 1.355 and 1.35. Stochastic gives a sell signal and increases the probability of a decline.
On the other hand, if the Canadian inflation data significantly exceeds the expectations (6.7%), the price may reach the December high of 1.37 and further to November highs above 1.375.
We may offer you the following option of trading strategy:
1. The Canadian inflation data exceeds expectations: buy USDCAD. Take profit 1 – 1.37. Take profit 2 – 1.375. Stop-loss – 1.358.
2. The Canadian inflation data are worse or in line with expectations: sell USDCAD. Take profit 1 – 1.355. Take profit 2 – 1.35. Stop-loss – 1.363.
Also, traders can use Trailing stop instead of fixed Stop-loss at their disposal.