USD/CAD Forex Signal: Loonie Strength to Accelerate

The downward trend will likely continue as sellers target the next key support at 1.2700.

Bearish View

• Sell the USD/CAD pair and set a take-profit at 1.2700.
• Add a stop-loss at 1.2850.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.2850 and a take-profit at 1.2950.
• Add a stop-loss at 1.2750.

The USD/CAD price came under pressure on Monday morning as the US dollar weakness continued. The pair slipped to a low of 1.2800, which was the lowest level since June 13 of this year. It has fallen by about 3.15% below the highest point this year.

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Canadian Dollar Comeback

The USD/CAD price had a mixed performance in July. The pair initially rose to a multi-year high of 1.3228 as the US dollar strength continued. It then made a major pullback as investors embraced a relatively risk-on sentiment.

In July, data from Canada revealed that the economy was going through some challenges. Inflation surged to the highest level in more than three decades because of the soaring oil and gas prices. At the same time, the labor market weakened in June as the economy lost over 30k jobs.

On a positive note, the unemployment rate dropped to about 4.7%. This was the first time it moved below the important 5% since the pandemic started. Further data revealed that the economic recovery is moderating.

According to Statistics Canada, output in June rose by just 0.1% after it stalled in May. As a result, the economy expanded by about 4.6% on a year-on-year basis. As such, analysts expect that Canada’s economy will start to moderate after it recorded substantial growth in the first half of the year. Analysts believe that the economy expanded by 2% in Q2.

There will be no economic data from Canada on Monday. As such, investors will focus on the latest manufacturing numbers from the United States. Economists expect data by S&P to show that the PMI slowed to 52.3 in July. The other reading by the Institute of Supply Management (ISM) is expected to have dropped from 53 to 52.0.

USD/CAD Forecast

The four-hour chart shows that the USD/CAD pair has been in a strong bearish trend in the past few days. As a result, the pair has formed a descending channel that is shown in purple. It has also moved below the 25-day and 50-day moving averages while the MACD remains below the neutral point.

The USD/CAD price has moved slightly below the 50% Fibonacci Retracement level. Therefore, the downward trend will likely continue as sellers target the next key support at 1.2700. A move above the resistance level at 1.2850 will invalidate the bearish view.

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