Buy USDCAD if US CPI is above 2.8%

In recent weeks, there were many negative factors for the Canadian dollar. Firstly, the decline in the global demand for oil weakens the Canadian currency, traditionally considered as a commodity currency. Secondly, the prospect of interest rate cut by the Bank of Canada is estimated by the market as the highest among G10 countries. The monetary policy easing will lead to the growth of USDCAD. Thirdly, president-elect Trump's plans to increase tariffs on imported Canadian goods could also negatively affect the Canadian currency.

For the USD, on the contrary, many factors are favorable. Yet another correction of the US stock after the Christmas rally is on the horizon. As a rule, the consequence of such a correction is strengthening of the American currency.

According to the technical analysis, the USDCAD pair is aiming to retest the level of 1.4600. A breakthrough of this mark is also not excluded.

From the macroeconomic point of view, the trigger for further strengthening of the US dollar could be today's US consumer inflation data for November.

These consumer price index figures will be the last this year before the Fed meeting on December 17–18. Overall inflation is expected to rise slightly in November to 2.7% from 2.6% in October.

There is wait-and-see mode in the market as its participants await this week's CPI and PPI data. If the CPI is in line with forecasts, investors will expect the Fed to cut rates by 25 basis points next week.

According to the CME FedWatch Tool, traders see an 86% chance of a cut next week. The number rose after Friday's news of rising unemployment and a rebound in job growth for October.

But if the CPI exceeds 2.8%, it will strengthen USDCAD.

The final recommendation is to buy USDCAD if the CPI exceeds 2.8%.

The profit could be fixed at 1.4600. The Stop loss could be placed at 1.3500.

The volume of the opened position should be set so that the value of a possible loss, defined with a protective stop order, doesn’t exceed 1% of your deposit.