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USDCAD IDDA Analysis after US Tax Cut, ahead of Canada’s CPI

By 12/20/2017 No Comments

USDCAD IDDA Analysis after US Tax Cut ahead of Canada’s CPI:  The big Trump tax cut got approved in the US. Now, the forex pairs are trying to find their direction.  While the US dollar saw gains against some counterparts, the USD/CAD pair continues struggling to break a key resistance level. Let’s use the IDDA technique to develop a trading strategy for this naughty pair.

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1- USDCAD IDDA Analysis – Fundamental Points

For USD/CAD to be able to create a new uptrend, we would need a strong USD and a weak CAD. Let’s see what the fundamental USDCAD analysis indicates.

US Side:

Taxes are cut for corporations and those with private jets

It’s been a busy week for politicians in the US as they tried to deliver their Christmas present for the very wealthy in time.

This is a $1.5 trillion tax cut. It will seriously cut the corporate tax rate. Temporarily cut a lot of individual taxes until 2025. And repeal the individual mandate – the part of Obamacare that requires everyone to have insurance.

The Republican-controlled U.S. House of Representatives gave final approval to this massive tax cut on Wednesday. They had to overcome the opposition from the Democrats to do this.

US Home Sales beat expectations

Wednesday’s data showed that U.S. home sales increased more than expected in November. The sales hit their highest level in nearly 11 years. This is good for those in the real estate business and those who are looking to sell their homes. Because it means that housing might have started to regain momentum after almost stalling this year. Of course, beating expectations on this is normally good for the USD.

Coming up on the economic calendar…

We still have more that can potentially shake the US dollar this week. First is the US Gross Domestic Product for Q3 out on Thursday at 1:30 PM GMT. It is mainly expected to remain unchanged. Any upbeat surprise could strengthen the USD further.

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On Friday we have the US Durable Goods Orders (NOV P) at 1:30 PM. Because orders for goods have large sway over the actual production, this figure serves as an excellent forecast of U.S. output to come. The orders are expected to have risen in November from -0.8% to 2.0%.

Canada’s Side:

The USDCAD analysis is about to get even more complicated. Not only we have all the above going on with US dollar, we have more to come from Canada.

Canadian CPI and retail sales (Dec. 21, 1:30 pm GMT)

On Thursday’s during the New York session, Canada will print its CPI and retail sales figures.

Weaker than expected readings could make the CAD bears stronger. Why? Because it could reinforce odds that the BOC could continue to be cautious about future tightening moves.

Canada’s Gross Domestic Product (Dec. 22, 1:30 pm GMT)

On Friday, it’ll be Canada’s turn to release their GDP data for October. On a monthly basis, the GDP is expected to remain unchanged at 0.2%. However, on a YoY basis, the markets are expecting a 0.2% increase to 3.5%. A lower than expected result could make the CAD weaker.

 

Now that we’ve got the fundamentals covered, it’s time to move on to the second point of the IDDA. Technical analysis.

1-USDCAD IDDA Analysis – Technical Points

The USD/CAD pair has been ranging above the Ichimoku cloud and below the 50% Fibonacci level of 1.29. The key pivot level is set at the 38% Fibonacci level of 1.26.

USDCAD IDDA Analysis - Daily Chart Technicals

USDCAD IDDA Analysis – Daily Chart Technicals

We don’t have any Ichimoku-base confirmations on the daily chart at this point. So range-trading could be a high-risk trader’s best approach ahead of the upcoming volatility.  

>>Learn about Ichimoku – Fibonacci Strategy Development

 

This brings us to the third point of the IDDA; Market sentiment analysis.

2- USDCAD IDDA Analysis – Market Sentiment

The third point of IDDA looks at market sentiment. On Wednesday, retail trader data showed 42.7% of traders were net-long the USD/CAD pair. The number of traders net-long is 14.5% higher than Tuesday and 13.4% higher from last week, while the number of traders net-short is 2.8% higher than yesterday and 12.5% higher from last week.

This is making the market sentiment outlook quite mixed from a long-term and short-term points.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDCAD prices may continue to rise. However, traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current USDCAD price trend may soon reverse lower despite the fact traders remain net-short.

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Final Thoughts…

As the 4th point of the IDDA technique, you must calculate your risk tolerance before deciding on the investment strategy that is suitable for your portfolio.

While the market sentiment appears to be bearish, any trading strategy for the pair remains high risk due to the heavy economic calendar.

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