- I analyze the USD/CAD pair’s recent move above 1.40, suggesting that strength could continue toward 1.4250 or even 1.45 over time.
- With trade tensions rising and the Fed remaining tight, pullbacks should offer buying opportunities.
The US dollar has rallied slightly during the trading session on Friday, and it looks like breaking above the 1.40 level has had people looking to get involved to the upside and perhaps trying to go to the 1.41 level. The 1.41 level has been a significant resistance barrier.
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If we can break above there, then it’s likely that we could go looking to the 1.4250 level based on the measured move of the inverted head and shoulders, and of course, the fact that it’s a major area of supply. Keep in mind that the Canadian economy is highly dependent on the US economy. At the same time, we have a situation where the tariff situation continues to deteriorate between the United States and Canada. In fact, this is probably the worst country the US has negotiations with at the moment, including China.
Where is Canada Going to Go?
If that’s going to be the case, the Canadians are going to have to find a place to sell all of their goods, and that’s not an overnight thing. They send about 80% of their goods into the United States—maybe even 85%, if memory serves me right—and exports to the United States make up about 25% of Canada’s GDP. With this, I think you’ve got a situation where short-term pullbacks will continue to be buying opportunities because on top of all of this, the Federal Reserve has reiterated the fact that a rate cut in December isn’t a given. In other words, they’re going to stay tight longer than a lot of people anticipated.
If that’s the case, this is a market that I think eventually goes higher. Although it might get the occasional pullback, that makes a certain amount of sense, as we had seen a lot of selling previously. But this breakout of the inverted head and shoulders could lead us right back eventually to the 1.45 level. I think it’s going to take some time, as this pair isn’t really known for being explosive from a day-to-day perspective.
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