Last week the USDCAD set a minimum since September. The whole month of a steady decline in the price has led to a significant oversold technical condition. It was followed by a rebound. The price rose to the level of 1.328. The bulls couldn't push prices higher: the last three trading sessions were characterized by falling highs, which is a sign of fading demand. In the coming days the USDCAD may go back to the June lows.
In addition to the oversold technical condition, the latest inflation data in Canada also helped the USDCAD to rebound. Price growth slowed more than expected, prompting investors to expect the Bank of Canada to keep interest rates unchanged at its July meeting. However, the regulator would be unlikely to interrupt a 5-month pause for a single rate hike in June. Thus, the bank is likely to raise interest rates again.
The Fed is also expected to make a rate hike of +0.25% at its July 26 meeting. There is almost a 90% likelihood of such a rate hike. Because of the holiday in the US any significant changes in the balance of power on the markets aren’t expected. But in the trading tomorrow volatility could rise sharply.
On Wednesday, the minutes of the previous Fed meeting, held on June 14, will be published. Market participants pay attention to almost all signals from the U.S. regulator, but it is the documents with the results of voting and comments of the Fed officials that are of particular interest.
Meanwhile, Canada is to release today the statistics on business activity in the manufacturing sector. Similar statistics from the US, released yesterday, showed the continuing pessimism among industrial enterprises. Canadian PMI is likely to rise from 49 to 49.6 points and in case of a positive dynamics the national currency will likely find additional support.
Stochastic indicator has already turned down from the overbought zone and gives a signal to sell USDCAD. The level of 1.319 may become the first downside target.
The following trading strategy can be suggested:
Sell USDCAD in the range of 1.323–1.325. Take profit — 1.319. Stop loss — 1.328.
Traders can also use a Trailing stop instead of a fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
