Technical Analysis of USD/CAD
In June the economy in Canada grew by 0.2%, righting an unsatisfactory contraction of 0.3% in May, and again in July by a further 0.3%, exactly as predicted. The Canadian Dollar recovered somewhat against the US Dollar.
Whilst the growth rate was welcomed, USD/CAD still dropped 50 pips before GDP was released. The currency pair fell to 1.0413 at that time.
In the US expectations were again matched as personal spending emerged at +0.2%, as predicted, although personal income dropped by 0.1% instead of rising by 0.1% as expected.
By the end of August, the Canadian dollar had been trading unevenly against the US Dollar, especially in the wake of the release of US GDP. Through September the currency pair fluctuated – the Canadian dollar started well, then achieved parity with the US Dollar and, having broken the line at 0.9750, this was quickly run through, eventually closing at 0.9850.
However, the rising risk aversion in markets has led investors to move away from risky assets and target those with lower yields. The USD/CAD pair should extend its gains over the coming period fuelled by the pessimistic outlook for growth and the mounting fears about the debt crisis in the EU.
There are likely to be high levels of volatility, as the graph shows, however the USD/CAD advanced doggedly up to and including the significant peak level of 1.065 yesterday as riskier commodity currencies continued to be sold off, then dipped rapidly to a low of 1.0505. Today the pair has again begun to climb and has already touched 1.056. The risk-averse fearful markets should ensure that this pair continues to rise, albeit erratically.
Other factors include the performance of the oil markets, and the forthcoming EU announcements such as those concerning Italian government bonds, however this is a bullish pair that is likely to rise and rise this month.
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