U.S. Dollar To Rise Against The Canadian Dollar

Summary

• The US dollar tumbled to the projected level of 1.3016.
• Canada managed to narrow its deficit shortfall from a whopping C$ 2.7 billion to C$ 600 million.
• The United States has threatened to raise tariffs from 10% to 25% on $200 billion worth of Chinese goods.
• The technical picture of the US dollar looks positive all thanks to the formation of a Doji candle signal.

In my last article, I was bearish on the US dollar as I expected it to fall to the 1.3016 mark. This came true as the greenback tumbled against the Canadian dollar, which resulted in it closing last week at 1.2990. Thus, in this article, I shall ascertain the likelihood of the US dollar rising against the Canadian dollar, as I expect the USD to rise till the 1.3156 mark. Hence, to establish the likelihood of this occurring, I shall look at the fundamental news affecting the pair whilst also analysing the charts using technical analysis tools.

Fundamental news for the pair:

• Canadian Trade Deficit:
  • Canada has managed to reduce its trade deficit shortfall from C$2.73 billion in May to C$630 million in June. This level of reduction was not anticipated as analysts had it pegged at C$2.3 billion. Moreover, this is smallest shortfall since January 2017 when it stood at C$500 million.
  • Canadian exports rose to 4.1% in June amid broad-based gains. The rise in exports was primarily due to a 18.9% gain witnessed in aircraft equipment exports and a 7.1% gain seen in energy products exports. On the other hand, the value of imports fell by 0.2%. The drop-in import levels largely occurred due to a 24.7% fall in the importation of refined petroleum energy products.
• Trade War issues:
  • On the trade frontier, the sense of truce between China and United States has fizzled out. This is due to the US threatening to raise tariff rates from 10% to 25% on Chinese goods worth $200 billion. The imposition of these tariffs is due at the end of this month.
  • Moreover, China has allowed the Yuan to devalue which seems to be a retaliatory move against the United States.
• US Non-farm payrolls report:
  • The US wages in June came out as analysts had expected. The statistic stood at 2.7% on a year on year basis and 0.3% on a month on month basis. Moreover, the real unemployment rate fell to 7.6% which is the lowest level seen since 2001.

Technical Analysis of the Pair:

Price history:

In a prior article, I had mentioned that I expect the US Dollar to tumble till the 1.3016 mark. This came true as the dollar managed to fall to the level on 30^th July. However, after this the greenback continued its descent which resulted in it closing last week at 1.2990. This was primarily due to the US Dollar breaking the key 161.8% support zone plus President Trump increasing trade war tensions.

Daily Chart:

The pair’s daily chart indicates that in the coming week, the US Dollar shall be having a bullish reversal due to the formation of a Doji candle signal which resulted in the pair entering a box range formation. This pattern psychology indicates to investors that the trend has reversed from bearish to neutral which has resulted in the bulls gaining the upper hand. Moreover, the current candles have taken support from a short-term level at 1.2988.

On the price target front, I do not expect the greenback to extend its rise beyond the 100% fibonacci resistance level at 1.3156. This is due to this level being a long-term resistance zone. However, if it does manage to breach the 100% level then I do not anticipate an increase above the 168.1% level at 1.3268.

On the indicator facet, the short-term RSI has just completed its descent as it has fallen to the 7-mark. This clearly indicates that a bullish reversal will occur and that the bullish run shall continue to the 100% level mentioned above.

The big picture:

Overall, I am leaning towards the bulls taking the greenback for an uphill ride which will result in it rising to the 1.3156 mark. This notion of mine is fuelled by the fact that the technicals and fundamentals support a price rise. However, whichever way you decide to trade, do ensure that you utilize trailing stops, as this shall aid in capital preservation which is of prime importance.

Good luck trading.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.