The USDCAD currency pair started to move within a converging triangle. The large-scale decline in the U.S. dollar weakened the pressure on other currencies. However, the Canadian dollar performs noticeably worse than other leading currencies, such as the euro or the pound. Since the Canadian currency feels uncertain even in the current environment, it risks quickly losing all the gains of recent weeks if the financial markets become pessimistic again.
Yesterday's publication of the minutes of the Fed's November 1 meeting did not have a significant impact on the currency market. The data received from the American regulator correspond to the current expectations of market participants. The start of the cycle of interest rate cuts is still predicted for next May. Thus, traders in the U.S. have maintained the status quo and may reduce activity ahead of tomorrow's Thanksgiving.
Meanwhile, Canada reported inflation statistics for October. The data was slightly better than expected: the overall price growth indicator slowed from 3.8% to 3.1% (3.2% was forecast), while the core indicator slowed from 2.8% to 2.7%. Both values are in line with 2-year lows. Simon Harvey, head of FX market analysis at Monex Europe and Canada, notes the current combination of slowing inflation and a cooling labor market and stagnant GDP.
According to Harvey, fresh statistics clearly speaks in favor of keeping the key rate of the Bank of Canada at the current level at the end of the meeting on December 6. The analysts' consensus forecast now comes down to the start of the monetary policy easing cycle in Canada as early as April 2024. This puts the national currency of Canada in a vulnerable position, because other central banks are unlikely to start cutting rates by that time. As a result, USDCAD quotes get an important growth stimulus.
If the USDCAD quotes get out of the converging triangle, they can reach the level of 1.377 very quickly. Cancellation of the growth scenario is possible no sooner than the price consolidates under 1.366.
Consider the following trading strategy:
Buy USDCAD at the current price. Take profit – 1,377. Stop loss – 1,366.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion