Following the failed attempt of launching a stock market to test the 2020 high on Tuesday, October 25th, many investors are now watching the USD/CAD as the next important “turning point” in the unfolding stock market trading story. It is critical to know when it is time to trade for and against the US Dollar.
The stock market is expected to rally to a high on the first day of the New Year and then decline in subsequent weeks and months. When the currency markets begin trading for this year’s highs, this signals that the market is ready to resume trading for the USD/CAD at a historically high level. For this reason, the USD/CAD levels will be at an all-time high point following Tuesday’s failure.
The USD/CAD is now trading at a record low after plunging during the first part of the year and beginning to climb after the middle’s end. The chart above reveals that the USD/CAD is above the previous all-time closing record highs during the second half of 2020. The spike occurred at the very end of January, which is only six weeks ago.
In this chart, note the power of timing on the march of the USD/CAD after the first day of the New Year, as it was trading in the red at the first time of asking as it rose to an all-time low for the year. When the USD/CAD makes a dash toward an all-time high in the second half of the year, this is due to the complete reversal of a trend that began at the beginning of the year.
The USD/CAD has made a complete reversal from the pattern of April and May and is trading today for only two-third’s of the size of the small cap stock market. This is due to the complete reversal of a huge, massive rally in stocks.
The danger with any potential stock market rally in the second half of the year is that the currency could find itself at an all-time high, only to have the bears regain control at the beginning of the third quarter and begin to ride out the rally, and rally again. Here are the four main reasons to watch this:
– Global Economic Data: Data on economic conditions in the US and China will continue to impact the USD/CAD throughout the year. When economic indicators are weak, the USD/CAD begins to retrace, which will result in the USD/CAD making a sharp reversal to near or past all-time lows, once the market stabilizes.
– Political / Global Conflicts: Despite the global tensions that are brewing, many investors are seeing great value in buying shares of stocks that are involved in the same economic and political arena. Some countries such as Canada, South Korea, and the US are not at war with each other, yet all have weak economies.
– Crises: It is likely that these upcoming events in the global economy, as well as economic data issues, will cause the economic index to drop, which will lead to another weakening of the USD/CAD and the SPDR. These events are sure to result in another market decline, and further strengthens the long term bears, who want to ride the USD/CAD back to its all-time low.
– Technical Indicators: If we look at the charts of long term technical indicators, we will see that most of them are extremely bullish at this point in time. That makes sense because the range of support has opened over the past three days, which is also a strong support level.
– Wild Swings: The charts below show that there are many technical indicators who are now signalling bullish swings in USD/CAD that can continue for at least the next few months. While they are both very uncertain, this suggests that the chances of the USD/CAD retracing towards all-time lows are very good.
Thus, watch the currency markets closely, but remember to ignore the technical indicators if you are trying to determine whether to trade short or long, unless you can meet the risk scenario. Either way, as the traders in the New Year, don’t forget to trade according to the technical indicators in order to profit from the market’s volatility, as this will help you avoid the bear trap.