Home Forex Market Analysis USD/CAD: Falling Wedge Hints to a Bullish Breakout

USD/CAD: Falling Wedge Hints to a Bullish Breakout

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USD/CAD: Falling Wedge Hints to a Bullish Breakout

The USD/CAD price is up slightly ahead of a busy week for the Canadian dollar. It is trading at 1.2580, which is a few points above last week’s low of 1.2522. 

Canadian dollar strength

This year, the US dollar has strengthened against most developed country currencies like the euro, sterling, and the Japanese yen. The Canadian dollar, on the other hand, has been relatively strong, gaining by more than 1% against the greenback.

There are several factors that explain the recent strength of the loonie. First, as one of the biggest American’s trading partners, the currency has done well because of the programs implemented by the US government. 

In the first quarter, the government launched two stimulus packages worth more than $2.7 trillion to help stabilize the economy. Therefore, most of these funds indirectly flowed to Canada, which sells US goods worth more than $300 billion every year.

Second, the USD/CAD has dropped because of the country’s abundant resources. The country is the fourth-biggest oil exporter, making it a beneficiary of higher oil prices. It is also endowed with vast resources like silver, gold, and wheat. While the oil price has cooled recently, it is still substantially higher than where it was last year. 

The USD/CAD has also fallen because of the Bank of Canada (BOC) statements. In its most recent rate decision, the bank left interest rates unchanged, as most analysts were expecting. But the governor also hinted that he would start winding down the pandemic response tools like quantitative easing.

Canada economic recovery

Further, analysts believe that the Canadian economy will have a swifter recovery as the country ramps up its vaccine rollout. The government has already vaccinated more than 12% of the population, and it hopes to keep the momentum going.

Upcoming data could provide more evidence about this. On Wednesday, the Ivey Institute will publish the latest Canadian PMI numbers. Analysts believe that the reading will be significantly stronger than February’s 60. Furthermore, last week, data from countries like the United States and Germany showed that the manufacturing sector was resilient.

On the same day, the country’s statistics agency will publish the latest Canadian trade numbers for February. In general, the numbers will also be better because of the higher crude oil prices and the volume of exports to the United States.

On Friday, the USD/CAD will react to the latest Canada employment numbers. Economists expect that the country added more than 100,000 jobs in March after adding more than 259k in the previous month. They also see the unemployment rate falling from 8.2% to 8.0%. These numbers will come a week after the US published strong employment numbers as the economy added more than 900,000 jobs.

USD/CAD technical analysis

The daily chart shows that the USD/CAD pair has been in a strong downward trend since last year. In the past few days, however, it has moved from the year-to-date low of 1.2370 to 1.2600. 

Further, the chart shows that the pair has formed a descending wedge pattern, which is usually a bullish signal. The price is also at the same level as the 25-day and 15-day moving averages and is slightly below the upper side of the wedge. 

Therefore, in the near term, the pair may drop as bears target the lower side of the wedge at 1.2440. However, in the longer term, there is a possibility that the USD/CAD will bounce higher to above 1.2800.

USD/CAD technical analysis

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