USD/CAD Challenges Key Daily Moving Average (1.2790)

It’s been a relatively quiet Friday on the forex, with only a few pairs making directional moves. One of the more active majors has been the USD/CAD. At press time, exchange rates of the USD/CAD have driven higher by 68 pips (0.54%). The bullish price action has come in the wake of a February WTI crude oil rally and slumping Canadian Retail Sales (Oct.) figures.

Aside from COVID-19, the key underpinning of the Loonie has been a prolonged uptrend in WTI crude oil. February WTI is trading above $49.00 ― a test of $50.00 appears inevitable by New Year’s Day. If this scenario unfolds, today’s bump in the USD/CAD is likely only temporary.

On the traditional economic news front, there were several numbers out today that influenced the Loonie. Here’s a quick look at the highlights:

Event                                                               Actual                     Projected            Previous

Canadian Retail Sales (Oct.)                           0.4%                            0.2%                   1.1%

Canadian Core Retail Sales (Oct.)                  0.0%                            0.2%                   1.0%

Baker-Hughes Rig Count                                 263                               NA                     258

To sum up, Canadian Retail Sales fell dramatically month-over-month. However, this was expected, so these figures aren’t that much of a shock. It looks like today’s price action in the USD/CAD is a product of short-covering, not shifting market dynamics.

USD/CAD Rallies, Tests Daily Moving Average

As you can see on the chart below, the USD/CAD hasn’t traded above its Daily SMA since November 24. This is an extremely bearish sign and indicative of the Loonie’s prevailing daily downtrend.

For next week, here are a few key levels to watch:

• Resistance(1): Daily SMA, 1.2790
• Resistance(2): 38% Current Wave, 1.2873
• Resistance(3): Bollinger MP, 1.2902

Bottom Line: Given the effectiveness of the Daily SMA as topside resistance, I’ll be going home short the USD/CAD at today’s close. With an initial stop loss at 1.2855, selling at market between 1.2780 and 1.2790 produces 50 pips profit on a sub-1:1 risk vs reward ratio.

Holding open positions into the weekend break is a risky proposition. If you are going to take this trade, be sure to implement leverage wisely and have your stops down ahead of this afternoon’s close.

ABOUT THE AUTHOR See More

Shain Vernier

US Analyst

Shain Vernier has spent over 7 years in the market as a professional futures, options and forex trader. He holds a B.Sc. in Business Finance from the University of Montana. Shain's career includes stretches with several proprietary trading firms in addition to actively managing his own accounts. Before joining FX Leaders, he worked as a market analyst and financial writer.

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