Accelerating Growth Is Bullish For Canadian Dollar

Accelerating growth is bullish for Canadian dollarCanadian economy expanded faster than expected in the second quarter. Will the Canadian dollar continue strengthening?

Canada’s economic growth accelerated in the second quarter: GDP rose at a 4.5% annualized pace. The increase in household spending was the main driver of growth. With Canadian economy accelerating the likelihood of monetary tightening after the Bank of Canada hiked interest rates in July for the first time in seven years increases. This is a bullish development for the Canadian dollar.

USD/CAD Chart

USD/CAD: D1 has been falling on the daily timeframe since it hit a fifteen-month high in the beginning of May. The price is below the 200-day and 50-day moving averages MA(200)and MA(50), both on a decline after levelling off.

  • The Donchian channel gives a bearish signal: it is tilted downward.
  • The Parabolic indicator gives a buy signal but is about to reverse to a sell signal.
  • The MACD indicator gives a bearish signal.
  • The stochastic oscillator is falling but has not reached the oversold zone.

We expect the bearish momentum will continue after the price closes below the lower bound of the Donchian channel at 1.2338. It can be used as an entry point for a pending order to sell. The stop loss can be placed above the fractal high at 1.2662. After placing the pending order the stop loss is to be moved to the next fractal high following Parabolic signals. Thus, we are changing the profit/loss ratio to the breakeven point. If the price meets the stop loss level (1.2662) without reaching the order (1.2338), we recommend cancelling the position: the market sustains internal changes which were not taken into account.

Technical Analysis SummaryPosition – SellSell stop – Below 1.2338Stop loss – Above 1.2662

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