USDCAD makes upward spurt before correction

14 August 2023 195
USDCAD makes upward spurt before correction

The USDCAD pair has been moving in a stable upward trend since early August. Quotes have recouped almost all the summer decline, last week the level of 1.35 was already tested. Although the price strongly bounced down from this point, it didn’t hinder the current upward trend. There are great chances to see another USDCAD upward momentum before the full-fledged correction starts.

Last week the market participants' attention was focused on the U.S. inflation statistics. If the data on price growth in the consumer sector was moderately positive, Friday's figures on manufacturing inflation were an unpleasant surprise for many. The U.S. manufacturing industry showed a monthly price growth rate of 0.3% — the highest since January. Apparently, July's spike in oil and gas prices left their influence.

For their part, Canadian statistical authorities will report on July inflation on Tuesday. Price growth is expected to slow further, this time from 2.8% to 2.7%. This year, except April, Canadian inflation will be falling in line with or ahead of analysts' forecasts. If tomorrow's data also turns out to be optimistic, USDCAD will get another incentive to continue the growth.

The U.S. inflation statistics didn't have a significant impact on expectations regarding the Fed's actions in September. Interest rates are still expected to remain at the current level with an almost 90% probability. However, the date when the monetary policy easing cycle will start is gradually moving away. Thus, Goldman Sachs economists expect the first key rate cut only in June 2024. Based on this forecast, even if the cycle of rate hikes has already ended, the U.S. currency will still receive support.

The RSI indicator on the USDCAD chart signals a quite strong overbought. After the quotes reach 1.35, there is a high probability of a corrective pullback. Therefore, traders should immediately take profit.

We may offer you the following option of trading strategy: 

Buy the USDCAD at the current price. Take profit — 1.35. Stop-loss — 1.339.

Also, traders can use Trailing stop instead of fixed Stop-loss at their disposal.  

This content is for informational purposes only and is not intended to be investing advice.

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