One of the lesser known currency pairs for Forex traders but still important is the USD/CAD, the US Dollar/Canadian Dollar exchange rate. This currency cross has its own peculiarities in terms of technical and fundamental analysis and offers high volatility at times. Let's discover together the particularities of this currency pair and how you can perform the price analysis.
First of all, we will follow with interest the monetary policy conducted by the Fed or US Federal Reserve and in particular the rate announcements which are often events conducive to strong dollar volatility. The press conferences that follow these decisions are of course also of great importance and often provide interesting indications of future policies.
For the Canadian dollar, we will of course follow the news of the central bank of this country, the BOC for Bank of Canada, which also regularly publishes its interest rates whose changes are also closely followed by investors on Forex.
Other economic data, this time, should also be followed for these two countries. These include publications on the unemployment rate, trade balance, inflation rates, GDP growth rate, retail sales, durable goods and industrial orders, business sentiment and consumer confidence. All of these data are indeed published monthly and quarterly by both the US and Canada and reflect the economic health of these two areas. To find out about future economic releases from these countries, you can use a Forex economic calendar which will list the dates of these events as well as analysts' forecasts and expectations.
Still within the framework of this fundamental analysis, it will be advisable to follow closely the international economic policy conducted by these two countries. Indeed, the political decisions taken by these economies may have an impact on trade with other countries and therefore on the exchange rate needs of importers or exporters, which will of course indirectly influence their currencies.
Finally, we will also take into account the speculative aspect of the foreign exchange market, which is influenced by various other factors such as global economic crises, sectoral crises, climate change or geo-political conflicts.
The USD/CAD is the parity showing the exchange rate between the American Dollar and the Canadian Dollar. Its rate corresponds to the value of a US dollar in Canadian dollars. On Forex or by surfing on specialized forums, you will hear about this currency pair under the name of Loonie.
The Loonie currency pair is still an important cross on the Forex market as it accounts for nearly 5% of all transactions made annually. It is therefore the sixth most traded currency pair in the world. In addition, the USD/CAD has the distinction of having high volatility, which can be beneficial to traders in the short to medium term but should be approached with caution.
Generally speaking, the USD/CAD is quoted to 4 decimal places. As with most other currency pairs, it is mainly the phenomena of supply and demand that justify its upward or downward movement. The price of this asset is therefore what is commonly referred to as a "floating" price.
If we already know that the organization responsible for regulating the greenback is the Fed or U.S. Federal Reserve, for the Canadian dollar, it is the CAD, or Canadian Central Bank that is responsible. However, the interventions of these two financial organizations on the Forex to manipulate the evolution of prices remain very rare.
Historically, the USD/CAD cross has moved downwards since its inception with an all-time low of 0.9058 and a record high of 1.6188 points.
We will now take a closer look at the technical analysis of the USD/CAD currency pair. This type of analysis differs greatly from fundamental analysis because it is not about analyzing events but only about studying charts from a mathematical and statistical point of view in order to detect specific movements and patterns suggesting that a trend will or will not accelerate or reverse.
As you will have understood, this type of analysis is not for beginners and requires a certain knowledge and experience. It is about using technical and graphical indicators to evaluate the direction of the trend, its strength, the volatility of the market and its liquidity.
There are many indicators suitable for USD/CAD analysis such as Bollinger Bands, MACD, moving averages, Fibonacci lines, pivot points and support and resistance levels.
Here, the technical analysis does not require that you are able to calculate these indicators by yourself because the majority of the charts proposed by the brokers and the sites of stock exchange information on line already make it possible to display them such as it is directly on the curves. It will be necessary however to know each of these indicators and what they mean if you want to make a correct and coherent interpretation.
It should also be noted that technical analysis also requires the ability to manipulate charts, whether by displaying the most relevant indicators or by customizing the time units of the latter. Depending on the trading horizon and the strategy chosen for the USD/CAD, the periodicity chosen will indeed vary in order to carry out an analysis sticking to the period studied.
Technical analysis is an essential analysis before any decision is taken on the foreign exchange market and must therefore be carried out with the utmost care. It must of course also be systematically coupled with a fundamental analysis.
There are many strategies that can be used to trade the USD/CAD currency pair. Indeed, you can for example choose to trade this cross in the very short term using a scalping strategy in a few hours, speculate on the price of this currency pair during a session using the day trading strategy and even implement a longer term trading strategy by keeping your positions open for a week or more using swing trading.
In order to get bullish or bearish signals for the USD/CAD currency pair, you will need to perform several types of analysis. The first will be technical analysis using customisable stock charts and various trend and volatility indicators and the second will be fundamental analysis which will look at the economic calendar and the various events that may influence these two currencies.
Although it may seem strange, it is entirely possible to take a position in a currency pair that includes two foreign currencies such as USD/CAD in Euros or in another currency that is not the US or Canadian dollar. Indeed, Forex trading is available in all currencies and allows you to speculate on all major and exotic currency pairs in the market.
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