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A Good Omen for the Greenback: USD/CAD Breaking Out Higher

A Good Omen for the Greenback: USD/CAD Breaking Out Higher

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- USDCAD breaks August 31 H4 key reversal bar through C$1.3326.

- AUDUSD, NZDUSD have yearly lows in focus.

- See the September forex seasonality report.

For much of 2015, USDCAD has been the bellwether for all things USD. With the US economy improving and the Fed looking to raise rates while the Canadian economy shrank and the BoC looking to loosen policy further, USDCAD has proven to be highly sensistive to interest rate dynamics.

Similarly, USDCAD has also proven to be one of the first USD-pairs to move when the underlying conditions have changed: USDCAD turned lower ahead of the USDOLLAR Index in April; it bottomed first in May; USDCAD's rally in July through mid-August and subsequent consolidation and pullback in late-August and September were mirrored by the broader USDOLLAR Index. USDCAD has provided an accurate binary answer system to the question, "Is the US Dollar appreciating today?" for much of 2015.

Accordingly, with USDCAD making significantly technical progress to the topside over the past 24-hours - the H4 key reversal/outside engulfing bar from August 31 was breached at C$1.3326, and the yearly high of C$1.3348 was taken out as well - it seems there may be some staying power to the USDOLLAR Index's latest move higher in the post-FOMC world.

Given USDCAD's tendency this year to lead the rest of the USD-complex, we are looking for a weekly close through C$1.3348 (former yearly high) as a sign that not only is USDCAD ready to breakout higher (towards the mid-1.3600s perhaps by the end of September), but the components of the USDOLLAR Index (but for USDJPY) may be ready to move in the direction of further USD strength as well.

See the above video for technical considerations in EURUSD, USDCAD, AUDUSD, AUDNZD, GBPNZD, and the USDOLLAR Index.

Read more: USD/JPY’s Triangular Coil Sets it Apart from Other USD-pairs

--- Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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