The U.S. Dollar Is All Set For An Upswing Against The Canadian Dollar

|
Includes: CADS, FXC, UDN, USDU, UUP
by: Sandeep Singh Ahluwalia
Summary

The U.S. Dollar ascended to the projected range of my last article.

The Federal Reserve meeting was extremely straight forward, as there was no rate hike and only minimal tweaks made to the policy statement.

The Federal Court temporarily blocked the construction of the Keystone XL Pipeline.

I am leaning towards the U.S. Dollar bulls being in the driver's seat.

In my last article, I was bullish on the U.S. Dollar (UDN, UUP), as I expected it to rise against the Canadian Dollar (FXC, CADS). This came true as the greenback rose till the anticipated level after which it entered a sideways pattern as expected. Hence, in this article, I shall ascertain the likelihood of the greenback having its bullish momentum continue against the Canadian Dollar up till the 1.3245 mark. Thus, to establish the probability of this occurring, I shall look at the fundamental news affecting the pair whilst also analyzing the charts using technical analysis tools.

Fundamental news

Canadian statistics

The unemployment statistics for October clearly indicate that the Canadian job sector is in an excellent condition. I say that because the unemployment rate fell to 5.8%, which was better than the market's projected level of 5.9%. Moreover, this was a drop from the prior month's unemployment rate which stood at 5.9%. This will most definitely provide the Canadian Dollar with some bullish vigor to withstand an attack from the U.S. Dollar bulls. However, this bullish strength is diluted by the GDP level as it is bearish for the loonie. I say that because the statistic on a month-on-month basis stood at 0.1%, which is a drop from the prior month's value of 0.2%.

Federal Reserve

I do not expect the Federal Reserve meeting to have any significant impact on the U.S. Dollar. This is because the meeting was extremely straightforward with no rate hike and only minimal tweaks made to the policy statement. The Federal Reserve took note of the fact that the business investment levels have been soft over the last two months. Moreover, the risk outlook looks to be "balanced", thus further gradual rate increases are expected.

This type of guidance by the Federal Reserve has become synonymous with hikes being made after every other meeting. Thus, this is a pattern which I believe shall result in a rate hike being done in December. Hence, I do not see the interest rate decision influencing the greenback as it is neither bullish nor bearish. However, it shall still result in the U.S. Dollar holding its ground as the statistics are in line with market expectations.

Risk Aversion

I expect the buying interest for the U.S. Dollar to regain momentum across the board. This is due to higher risk seen in the Asian equity markets. Thus, I believe investors will put a fresh bid for the greenback as it is seen as a safe-haven currency.

Keystone XL Pipeline

The Federal Court temporarily blocked the construction of the Keystone XL Pipeline. The key reason the court blocked the pipeline is due to the state department not accounting for factors such as low oil prices and the cumulative impact of greenhouse gases from the pipeline. This decision by the Federal Court is a major blow to President Trump's image and ego. However, most of the pain from this decision will not be felt by the Trump administration, but by the Canadian Dollar. I say that because the Keystone XL pipeline was aimed at transporting oil from Canada to Texas, which in turn would have helped remove supply bottlenecks for Canadian crude exporters. Thus, this would have increased the level of Canadian oil sales down the road, which would have positively affected the trade balance of Canada. Hence, this news will most definitely cause the value of the Canadian Dollar to fall as it places a great deal of bearish pressure on the loonie, as it worsens the economic outlook of Canada.

Technical Analysis

Daily chart

USD/CAD daily chart

The pair's daily chart indicates that the greenback shall be having a bullish continuation against the loonie. I say that because the U.S. Dollar formed a "Bull Sash" pattern which received a bullish confirmation in the next session. The candle pattern's psychology indicates to investors the bulls' ability to keep the market moving up into the trading session. Moreover, the next bullish candle shows that the bulls have fully gained control of the market.

On the price target front, I do not expect the U.S. Dollar to rise beyond the 127.2% Fibonacci resistance level at 1.3245. This is due to this level being a candle resistance zone. However, if the U.S. Dollar does breach the 127.2% support level, then I do expect the rise to go beyond the 161.8% resistance level at 1.3298.

On the indicator facet, the daily chart's RSI has tilted in favor of the bulls as it has breached the 70-mark. This supports my notion that the greenback will have an incline till the 127.2% Fibonacci resistance level.

Weekly chart

USD/CAD weekly chart

The pair's weekly chart indicates that the greenback will be having a bullish breakout from the box range pattern it has been trading in for the prior three weeks. I say that because the pair has formed a large bullish candle which has broken through the 100% Fibonacci resistance level at 1.3219. Moreover, the pair has closed above the 20-day moving average for the past three sessions, which confirms to us that the trend is bullish.

On the indicator facet, the pair's lagging line is in steep ascent and is trading above the cloud formation. Additionally, the past five candles have consecutively been above the cloud formation and have been bullish in nature. This reinforces my stance that the bullish trend is here to stay.

On the price target front, I expect the U.S. Dollar to rise till the range between the 127.2% and 161.8% Fibonacci resistance levels. The 127.2% Fibonacci resistance level is at 1.3242, whilst the 161.8% Fibonacci resistance level is at 1.3885. I do not expect the greenback to be able to break above the 161.8% Fibonacci resistance level as this is a long-term candle resistance zone.

The Big Picture

In conclusion, I am leaning towards the U.S. Dollar bulls being in the driver's seat. This notion of mine is fuelled by the fact that the technicals and fundamentals support an ascent in the greenback's value. However, whichever way you decide to trade, do ensure that you utilise trailing stops, as this shall aid in capital preservation, which is of prime importance.

Good luck trading.

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.