I want to give more insight with USD/CAD analysis through the following topics:
- USD/CAD Name Analysis
- USD/CAD Analysis Popularity
- How to Trade USD/CAD
- Trading Session Pip Range
- What is USD/CAD Daily Range
- USD/CAD Weekly Range
- Monthly Range and Pip Range History
- What Impacts USD/CAD Volatility
- Connection Between Volatility and News
- USD/CAD Analysis – What to Take From Here
USD/CAD Name Analysis
The USD/CAD trading pair is known as the loonie currency pair but it has two more names, The Funds and Beaver. Loonie is the most used nickname and the name comes from the bird on the Canadian coin.
You will mostly see the name Loonie because it is widely accepted among the traders.
USD/CAD Analysis Popularity
USD/CAD trading pair is a major pair and it is traded a lot on the Forex market. Whenever you see change in the oil price you can expect that this pair will move.
It is because the Canada is heavily related to the oil price. They are exporting oil to the U.S. market and if there are any changes on the market Canadian dollar will be impacted by those changes.
How to Trade USD/CAD
The USD/CAD trading pair is very close connected to the commodity price fluctuations. The most important commodity is the oil because Canada heavily relies on the Oil exchange.
Canada produces a lot of oil on a global level and what happens to the oil market it has direct influence on the Canadian economy and subsequently on the USD/CAD trading pair.
Now, when you want to trade the USD/CAD trading pair it is wise to watch out on the date of release of oil inventories. The economic calendar will tell you when this is scheduled. The best Forex economic calendar is the Forex Factory calendar that contains the most important news and the dates for any trading pair.
When the oil information is released you can anticipate where the Canadian economy is heading. If the oil inventories are high that means that the oil price will drop. For the USD/CAD trading pair it means that the price of the pair will go up.
Why the trading pair will go up?
If the oil price is falling it means that the Canadian currency becomes weaker and the U.S. dollar becomes stronger compared to the Canadian dollar. The price of the trading pair will go up and you should buy the currency pair.
If you watch out on the interest rates you will see that the price of the trading pair is changing whenever the interest rate is changed. The central bank of the U.S. and the Central Bank of Canada have their meeting, FED every 6 weeks and BOC every 30 days. If the interest rate is going to change you should watch for it.
How to Trade USD/CAD – Volatility
In a year 2014 when the oil price fell from 95.31$ per barrel to a bottom of 42.03$ per barrel the price of the USD/CAD pair have increased from 1.0872 in 09/2014 to a value of 1.2516 in 02/2015.
If there are some turbulence in the oil market USD/CAD will react and you can jump in and take the profit from the market.
While the price of the oil is changing, due to world situation on countries that produces or transport the oil, the price of the trading pair will change.
USD/CAD Analysis – Trading Session Pip Range
Lets dive into USD/CAD trading pair analysis to see how the pair behaves in different hour, day and month. I want to emphasize that the time of the candle price is taken out from the platform which is on GMT+1.
First chart shows how the pair is doing on the trading sessions compared to other trading pairs. I have ordered pairs on the chart to easily see which pair has lowest and which have the highest volatility.
The USD/CAD is the fourth trading pair with the highest volatility in all trading sessions which implies that the pair is the one of the fastest among all other pairs. The USD/CAD analysis shows us that traders love to trade it and we have large pip range during each session.
Read more: Forex Market Trading Session
Which Trading Session Should You Trade
If you are not bond to the time frame during each day like if you live in Australia, and it does not make a problem for you to trade on the London or New York trading session, then you can extract the best volatility from the market.
On Sydney and Tokyo session you will have some volatility which can be enough for almost every strategy because pip range more than 30 pips is great. Moving from Asian session to European, London, session we see rise in the pair volatility.
The London session gives us great volatility which is more than double than the Sydney session on some days in a week. Because the USD and CAD is world major currency, many traders love to trade this currency and consequently pair have higher volatility.
During the London session we have overlap with New York session which gives us more volatility because U.S. traders jumps in the market. During overlap, news on the U.S. market are published which impacts all currencies in the world.
You will see further in this post on the chart how the overlap time have impact on the pair volatility during the day.
From this chart you should take information that the USD/CAD analysis shows you that:
- pair have high volatility on the London and New York trading session
- during overlap with London and New York session, the trading pair have increased volatility
- starting from the Monday, volatility increases
- volatility peak is in the middle of the week, on Wednesday
- volatility is still high on the Friday
USD/CAD Analysis – Daily Range
If you take a look how overlap looks like then you understand why pip range is higher on these times. The trading session chart shows that time between 2 trading session, the London and New York, happens between 14:00-18:00h(GMT+1).
How does the time overlap looks on the daily pip range, measured in hours during a day is shown on the next chart. Immediately you can see that time between 14:00-18:00 have rise in pip range which confirms above said.
Time overlap between the London and New York trading session, news publishing, large amount of traders on the market have a result as increased pip volatility in that time.
It is not only the London and New York trading session overlap that makes a difference in pip volatility. You can see that the trading session overlap between the London and Tokyo make a change on the pair volatility.
USD/CAD Analysis – London Session
The London session is known as the largest one and while the USD and CAD are major currencies, traders like to trade them. We see increase in pip range from 09:00h up to 11:00/12:00h.
Around noon we see drop in the pip range on the London session. Mostly this is due to lunch brake in Europe, positions are set and traders relax in the next 2 hours waiting for the New York session.
USD/CAD Analysis – New York Trading Session
Around 14:00h we see rise on the pip range and reason for this is that U.S. traders together with the Europe traders are active on the market. The USD/CAD volatility increases due to large amount of trades.
Traders form their positions and mostly around that time news from the U.S. are published. News have high impact on this pair because the USD currency is widely connected to all other currencies. So, when the USD currency moves all other currencies also move, more or less.
Going to the end of the day you see that the pip range starts to decline, especially when the London trading session finishes (17:00h). Large amount of traders close their position, USD/CAD volatility declines and pair is traded less.
By the end of the day the pip range is at same level as it was on the start of the day. Sydney and Tokyo trading session takes over and another day comes.
What you should take from these two charts for your trading:
- During a day the pair have highest volatility on the trading session overlap
- Two trading session overlap have increase in the the pair volatility, Tokyo-London and the London-New York session
- The best time to trade is on the London-New York trading session overlap where the pip volatility is at the highest rate
- You should close your positions, if you are a day trader, until the London session closes to avoid later “slower” movements
USD/CAD Analysis – Weekly Range
On the next chart I will show you how the pair is doing on the weekly basis, but not on the trading sessions. This information you can incorporate into your trading strategy when you plan to trade this pair.
Similar to chart “USD/CAD analysis – trading session pip range” this chart shows similar data on the pair volatility. Starting from the Monday, the pip volatility increases. This increase we can connect with waking of the market after weekend.
From the Monday to Wednesday, traders makes they trading strategy and enters into trades. Trends on the pair movement start to form. Traders looks what is pair trend, make trading plan when to enter and exit and which news will have impact on the trading pair.
These key characteristics are done over weekend before or on the start of the week. When all is done traders enters into positions and they day trade or wait several days to exit their positions.
When the pair hits Wednesday, mostly traders start to plan to exit trades. The pair volatility declines to the end of the week. On the Friday there is still volatility, higher comparing to the Monday.
On the Friday traders tend to close their positions due to weekend on which sometimes can news be published, which have high impact on the pair. So, to avoid that kind of possible problem, if news are against trader, they close their position on Friday.
Friday – Day for Profit Lock
During the Friday you could see that the price of the pair reverse against weekly trend. Reason for this is also in closing positions of the traders who takes their profit from the market.
What you should take from this chart:
- On the Monday prepare yourself for trend forming
- Until the Wednesday do not trade or scalp if you are scalper or day trader. Wait until highest volatility hits the pair where you can extract most out of this trading pair
- If you are weekly or long term trader wait until the Wednesday until the trend is formed or confirmed
- On the Friday get out from the trading pair if you are uncertain will there be any news over the weekend which could impact the trading pair volatility
USD/CAD Analysis – Monthly Range and Pip Range History
In the next part of the blog post I will show you 12, twelve, charts which shows the USD/CAD analysis over few decades in order to give you the best pair volatility overview.
On the chart above you can see that the average monthly pip range is around 400-500 pips. Only two months have average pip range over 500 pips. Comparing this information with other trading pair like GBP/JPY which have the highest pip range volatility where average is 900 pip we see that USD/CAD is relatively volatile.
January had only large spike in 2009 when the financial crisis have been started and on 2015 when there the oil price drop and CAD currency have lost value.
In the February nothing important happened and the average pip range remained also up to today. If you have read other pair analysis you could see that most trading pairs have losing their volatility in last 2-3 years.
Major financial crisis in 2007-2008 had large impact on price movement on every currency so this pair had also some change in pip range.
In the November were the same case as in the October when the financial crisis started to influence the market.
Impact from major financial crisis stretched over several months and increased pip range over thousand pips.
USD/CAD Analysis – Monthly Conclusion
Small volatility leaves smaller opportunity for traders because it is much easier to grab some pips in over 100 daily pip range instead trading on 70 daily pip range. So, in these times you can expect that you will have lower average pip income.
This directly impact on the trading results because smaller pip movement can be hard to trade when spread or commission is to large. Sometimes opening a trade is not worth of the costs you will pay just to enter into the trade.
Smaller volatility can trick you in a way you think there is a trend but momentum slows down and you get stuck in a trade. You have less trades available or signals from your trading strategy and your strategy begins to give you less profitable trades.
What we see generally by average line on each month is that the average pip range have first part of the year rising and the second part of the year is declining from 2009 and we do not have such volatility as before. This gives us less opportunities to catch higher number of pips but still pair has large volatility that allows us to trade it and to earn money.
What Impacts USD/CAD Volatility
What influences these two currencies is primary their economy. One of the highest indicator that have large impact on the currency is interest rate in each country.
Mostly when interest rates are increasing price of the currency is increasing. This is called International Fisher effect.When interest rate is higher in Canada it means that CAD will rise comparing to USD. When USD interest rates is higher than Canada, USD will rise comparing to CAD.
Higher interest rates means currency will attract more investors in that country where they can earn more money and currency becomes more desirable.
Central banks – Institutions that affect the pair are the central banks, FED and BoC(Bank of Canada). They regulate interest rates which as a result have currency movement.
Connection Between Volatility and News
Countries with high level of inflation depreciate more compared to other currencies. Inflation causes the central bank to intervene in a way as adjusting interest rate to control undesired effects.
When interest rates is increasing that is good for currency so you can expect price of CAD will rise. Why does it rise – because when there is high interest rate in country it attracts more investors who can benefit on high rates.
But have in mind that the trading pair chart is not only with one currency but with two currencies. This means sometimes if interest rates is increasing for CAD it could happen that trading pair value will not increase. Reason could be that USD is stronger even interest rate on CAD is rising, pair price could remain moving sideways or even falling.
In case of USD/CAD trading pair you should watch out on the OPEC production levels and meetings and anything related to oil.
PPI, CPI, PMI and GDP
- PPI as Producer’s Price Index
- shows trends within sale markets, manufacturing industries and commodities markets
- CPI as Consumer Price Index
- Consumer Price Index measures inflation that is most important indicator of the economic health of that country
- PMI as Purchasing Managers Index
- shows us are purchasing managers optimistic or pessimistic about the economy
- GDP Gross Domestic Product
- tells us how much the economy is strong, hod does it advance and is it healthy or not
These indicators have impact on the price of any currency and they are ones which you should watch. Price index is telling how the price of consumer goods and manufacturing material is doing. These prices have impact on inflation and consequently on interest rates.
GDP is overall information how country is doing and this information will have large impact on the price of currency.
I will not go more into details about these indicators but you can check for more information on the links I have gave.
USD/CAD Analysis – What to Take From Here
As I have give a lot of information in USD/CAD analysis there is useful information you can use in your trading.
- Pair have relative large volatility and high movements
- Use overlap in trading sessions, London and New York, to extract as much pips is possible because then you will have the highest movement
- During a week choose to trade on middle of the week, Wednesday and Thursday because then you have best volatility and chance to grab pips from the market
- Watch for Friday – lock the profits you have to avoid impact from weekend news if there is any
- Any month in a year is good to trade. There is no big difference between them
- Watch out on published news and indicators that have large impact on the currency
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