Technical factors are not enough to stop USDCAD growth

29 August 2023 201
Technical factors are not enough to stop USDCAD growth

The USDCAD currency pair is still moving within an upward trend. Since the beginning of August, the U.S. dollar has appreciated against its Canadian counterpart by almost 3.5%. There is nothing surprising that such growth led to the formation of strong overbought condition shown by technical indicators. However, it does not seem that this fact significantly prevented USDCAD buyers from moving further. They are probably focused on the price highs of April and May, located not far from the level of 1.365.


The beginning of the current week had no important news, so the currency market participants are analyzing the information from the conference in Jackson Hole. Apparently, Jerome Powell and his colleagues still managed to convince traders of the strong intention to defeat inflation by raising interest rates. The forecast for the key rate peak in the U.S. was revised, and now it corresponds to the range of 5.5–5.75%. However, at the meeting on September 20, monetary tightening is still not expected, the forecast assumes a step of +0.25% in November or December. Anyway, this is another factor of the U.S. currency strength.


Meanwhile, the dynamics of the Canadian dollar will greatly depend on the statistics, which will be released at the end of the week. On September 1, Canada's GDP data for Q2 2023 will be published. After the economy grew by an impressive 3.1% in Q1, the Bank of Canada expects the pace of economic growth to slow down to 1.5%. However, many analysts do not agree with this assessment.


Benjamin Reitzes of BMO Capital Markets expects more modest 1.1% growth in the Canadian economy. According to him, huge forest fires and strikes of port workers might have a significant negative effect on the final GDP figures. If the publication of statistics on Friday confirms these fears, the Canadian currency will accelerate its decline.


The 1.365 mark is now the main target for the USDCAD buyers. After it is achieved, we may see some correction or sideways movement, but until then the bulls still have good chances for additional profits.

 


The following trading strategy might be suggested:


Buy USDCAD at the current price. Take profit – 1.365. Stop loss – 1.355.

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

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