The USDCAD currency pair continues to roll back down from the six-month high of last week, set at the level of 1.3785. After breaking the level of 1.36, the downward movement has slowed down, but has not exhausted itself yet. Taking into account 3 days of strong declines, a small upside bounce is seen today. This will allow the bears to take a breath and start selling the USDCAD with renewed vigor.
Representatives of the Federal Reserve System, who have noticeably softened their rhetoric recently, continue to exert pressure on the U.S. currency rate. Yesterday, the head of the Federal Reserve Bank of Atlanta, Raphael Bostic, and his colleague from the Federal Reserve Bank of Minneapolis, Neel Kashkari, supported the dovish stance. Their opinion is in line with the comments of the U.S. regulator's officials who spoke on Monday: the Treasury market has tightened credit conditions on its own, and an additional interest rate hike by the Fed is no longer required.
Now, market participants assess the probability of another monetary tightening in the U.S. at less than 30%. In such conditions, traders shifted their attention from the U.S. dollar to other currencies, which were previously among the outsiders. In particular, the demand for the Canadian currency, additionally supported by the rebound in oil prices, returned.
Chief operating officer of the International Currency Exchange, Darren Richardson, also draws attention to Friday's Canadian Labour Statistics for September. The same statistics from the U.S. showed strong figures, but the Canadian data are also highly commendable. It is worth paying attention to the growth rate of wages: in the U.S. they have been gradually declining since April, while the Canadian statistics reflected an increase from 5.2% to 5.3%. The Canadian labor market has not yet shown a noticeable cooling, which plays in favor of strengthening of the national currency and a decline in the USDCAD.
The level of 1.35 can be identified as the main downside target for the USDCAD. The RSI indicator is moving out of the overbought territory, confirming a high probability for the continuation of the downward movement.
The following trading strategy may be offered:
Sell USDCAD at the current price. Take profit – 1.35. Stop loss – 1.367.
Also, traders can use a Trailing Stop instead of a fixed Stop loss at their discretion.