USD/CAD Forecast 02/09: Thin Holiday Trading (Chart)

(MENAFN- Daily Forex)

• The US dollar has rallied against the Canadian dollar during the Labor Day holiday in the United States, in what would be what one would assume is very thin trading.
• That being said, it's worth noting that we are in the neighborhood of support to begin with, and there are a lot of things out there that I believe works against the value of the Canadian dollar over the longer term.
• Simply put, it really comes down to whether or not you believe the rhetoric, or the actual data as to which direction you will trading this pair.

North American Trade

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If, we really do see some type of massive economic downturn in the United States due to tariffs or whatever you believe is causing it, the reality is that it is horrific for Canadian economic movement. Canada gets roughly 25% of its GDP from exporting to the United States, and if your biggest customer is starting to slow down, you have a serious problem. For what it is worth, Canada just reported the biggest drop in exports last quarter in decades. This is something that certainly will not help the economy itself.

EURUSD Chart by TradingView

Granted, there is a certain amount of“punishment” for the US dollar due to the lack of a new trade deal with the Canadians, but it's only a matter of time before Canada suffers at the hands of the law of large numbers. The Canadian economy is roughly 7% of the US economy, so we aren't even talking about an actual fight here. In the meantime, it looks like traders are willing to bounce the pair back and forth, which quite frankly isn't completely out of line anyway. This is a pair that can be very choppy Analysis

I believe that we can break above the 200 Day EMA, at the 1.3873 level, it will lead to a big“FOMO trading” in this pair. While the Federal Reserve cutting rates could be negative for the US dollar in theory, it quite often will lead to the exact opposite situation, as traders around the world run to the safety of the US Treasury market. While there is a lot of grandstanding about avoiding the US at the moment, the reality is as soon traders start to worry about losing money, they will revert to what they've always done, buying the safety of bonds.

If we were to break down from here, I do think that we could drop all the way to the 1.36 level. That's an area that begins massive support on a monthly basis, so I think we do have somewhat limited downside. For that matter, if you squint you could probably pick out a“rounded bottom” pattern.

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