The Canadian dollar is strengthening for the third day in a row. On Friday, the USD/CAD pair fell to 1.3968 and traded below 1.3960. This is the lowest level in six weeks.
USD/CAD shows how many Canadian dollars one US dollar costs. The pair falls in two cases: when the US dollar weakens or when the Canadian dollar strengthens. Right now, both are at work.
In three weeks, the pair has lost more than 2%, and the decline has not stopped yet. For a trader, this is a trend that lasts for weeks, not intraday noise.
Where is the pair trading now?
- 1.3961 - the quote at the time of the FXStreet review publication on October 30, 12:53 Moscow time
- 1.3968 - the October 23 low, which the market has already broken below
- more than 2% - the pair's losses over three weeks
An important detail. By breaking through 1.3968, the market took out the previous low of the month. The former support has stopped working.
Why is the pair falling?
There are two reasons, and both push the pair in the same direction.
- A weak dollar. After Alphabet's (Google's parent company) disappointing report, the market is again talking about overheating in AI-related stocks. Investors moved out of stocks into US Treasuries, and yields went down: 10-year bonds are down more than 30 basis points in October. The lower the yield on US debt, the less demand for the dollar.
- Expensive oil. Brent holds above $112 and is closing October with a gain of almost 20%. Support comes from the lack of progress on a peace agreement between the US and Iran and continued attacks on ships in the Strait of Hormuz.
Hence the strength of CAD. The Canadian dollar is a commodity currency, and Canada is a major oil exporter. On Friday, CAD was the strongest currency against the dollar.
What do the charts say?
- RSI(14) on the four-hour chart has fallen to 32.5 - close to the oversold zone
- MACD holds just below zero
- Below, the reference points are the mid-September low around 1.3900 and the 1.3875 zone (the 78.6% correction level)
- Above, attention is on the round 1.4000 and the October 21 and 23 highs around 1.4070-1.4080
Oversold is a condition when the price has fallen too fast and a rebound is possible.
The main point: the downtrend in USD/CAD is held by oil above $112 and falling US yields. As long as these two factors are at work, selling the pair remains the market's logic, and 1.4000 is the upper boundary of attention.
What's next?
It's worth watching oil and yields. If Brent reverses or US yields go up, the pair will quickly return to 1.4000. The nearest dollar events are in the economic calendar.
- Downside scenario - consolidation below 1.3900 with a target of 1.3875
- Upside scenario - a return above 1.4000 and a test of 1.4070-1.4080
If you trade commodity currencies, you can pick a challenge to suit this style.
Have you been shorting the loonie these three weeks?
A 2% move in the pair is weeks of work. It is not captured by the one who first saw oil above $112, but by the one who had a proper volume behind the idea. On a deposit of a couple thousand dollars, such a trend is closed out with an amount that is painful even to lock in. In prop trading, the logic is different: you pay for selection, and the trading notional and risk limits are provided by the company, which takes a share of the result. It's easier to understand this mechanic now than on the next such trend in commodity currencies.