US dollar to continue higher against Canadian dollar

Alan Penny

20 August 2019

3 min read

The US dollar has gone back and forth during the trading session on Tuesday as we continue to press the crucial 1.3350 level. This is an area that has offered a bit of resistance as of late, and therefore the fact that we are testing it for the third time in the last couple of weeks tells me that there is a lot of upward momentum building up in this market. It’s simple inertia, eventually the barrier will give way.

Crude oil

The crude oil markets have been falling for some time, and although they did try to rally during the previous session, we have fallen yet again. Ultimately, this is a market that is slowing down due to a lack of demand, as markets continue to reflect a lack of global growth. With this, we should continue to see a lot of trouble when it comes to the Canadian dollar as it is a proxy for the crude oil markets.

US dollar strength

There is a lot of US dollar strength anyway, so it makes sense that we would continue to see this pair rise. There is a lot of concern out there when it comes to global growth beyond the crude oil market, and as Candida is a commodity currency will continue to struggle. Beyond that, we have a lot of concerns about the housing market in Canada, which is currently in the midst of popping a bubble. It’s very likely that we will continue to see weakness here and there are growing calls for the Canadians to cut interest rates. Although the Federal Reserve is known to do just that here recently and more than likely to extend it, the Bank of Canada is possibly behind the curve. As money flows into the US Treasury market, it makes sense that the US dollar strengthens.

Technical analysis

usd/cad chart


The technical analysis for this chart is quite simple: we have the 50 day EMA which is pictured in red getting ready to cross above the 200 day EMA which is pictured in black. That’s essentially the “golden cross” which suggests that longer-term momentum is starting to swing to the upside. Beyond that, we also have the 1.3350 level that has offered resistance being tested yet again. At this point, it’s very likely that once broken traders will probably target the 1.35 handle.

The trade going forward

The trade going forward is relatively straightforward for me: I’m buying dips as they occur, down to at least the black 200 day EMA. I would probably still consider doing it as low as the red 50 day EMA, but if both of those moving averages were broken below, then I might have to rethink the situation. Until then, it’s very likely that pullbacks will simply be momentum building exercises to turn this market back around. Once we get that break out, the move to the 1.35 level could be rather quick and violent. I have no interest in selling in the short term.

Written By
Alan Penny

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