Markets can change quickly and drastically. From bullish to bearish, from stable to unstable, the path of a trading currency is never a straightforward one. But how does one trade in such volatile markets?
In order for traders to make money by taking advantage of these changes, they must research their investments and anticipate the best time for them to go on the market. This blog post looks at USD/CAD as an example case study for this concept, discussing when it made sense to buy USD/CAD after its recent upswing.
The USD/CAD currency pair consists of one United States dollar (USD) and one Canadian dollar. The exchange rate is set at $1 USD = 1.36735 CAD, and given this information, the daily trading range between each pair can be calculated as shown:
USD/CAD Daily Trading Range
This allows for traders to form their own strategies for trading in the USD/CAD exchange rate, as well as determining when is the best time to buy and sell. In this case study, I will try to show how to take advantage of recent market movements and analyze the merits of one possible trade strategy against this pair.
First, we will analyze USD/CAD’s recent price movements before explaining how traders can make money by taking advantage of these changes by trading on them. Next, I will examine trading potential using up-to-the-minute technical analysis indicators, which can be a guide in deciding when is the best time to trade a currency pair.
USD/CAD – How it Works
If you’re already familiar with how a basic currency pair works, skip this section to get right into the recent upswings of USD/CAD.
USD/CAD is a currency pair that is composed of one dollar (USD) and one Canadian dollar (CAD). Both currencies are issued by the same country, so there are not two separate currencies being traded. As such, USD/CAD can be seen as a combination of two currency pairs: USD/USD and CAD/USD.
The USD/ CAD currency pair is one of the most important currency pairs for market speculators. The U.S. dollar is a major reserve currency for many countries, including Canada, and both Donald Trump’s presidential campaign on the Republican side and Justin Trudeau’s recent election as prime minister on the Canadian side have been interpreted by many traders as possible changes to the role of the U.
USD/CAD, Daily Candles, Macro Trend
The concept of this pair is relatively straightforward. The prices of the United States dollar against currencies in other countries are a regular occurrence, and different currencies carry different weights in their respective economies. One example is the US dollar against the Canadian dollar; there will be currency transactions between the US and Canada where one Canadian dollar stands to equal $1 USD.
There are several macro factors that affect this pair’s movements, including economic data such as Gross Domestic Product (GDP) figures released by both countries. These figures can transmit information affecting each country’s overall economic growth.
USD/CAD Price Analysis: Macro Factors Affecting the Price of USD/CAD
For example, if the United States economy is doing well and its GDP is on an uptrend, it could be expected that the US dollar might appreciate relative to a second currency. If this is the case and the US dollar appreciates when compared with a second currency, it makes sense to sell US dollars and buy that other currency. Obviously, this strategy works best when the ratio of both currencies is high. However, if one currency happens to be much stronger than the other one in terms of economic factors like GDP growth rate, trading in such a pair could become riskier.
