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September 20, 2021

USD/CAD- Volatile Market Sets Up For Big Move

Frank Cabibi

9/20/2021

Today is a federal election where 338 members will be added to Canada's parliamentary system in a turbulent race caught in a dead heat. Current prime minister, Justin Trudeau, and his liberal party are now one percentage point behind the conservatives in the election. This is causing some major volatility for the loonie in the wake of a strengthening dollar.

Our outlook

I think the USD has the potential to run away with all the momentum as uncertainty in the Canadian parliament election. Expectations of the Fed tapering this year are getting higher an higher as bond yields crumble to February levels and 1.32% this morning. Risk-on sentiment towards stocks and crypto are dwindling in the wake of fears of regulation and global uncertainty. When this starts happening, investors turn to safe spots like the USD. So, we could see an increase in demand for the dollar this week as FOMC economic projections will come out this Wednesday followed by Powell's testimony later in the week.

Trade Setups

USDCAD

USDCAD on the 1D chart has been in a tug-of-war behavior for months now as the pair might have started to form a head and shoulders pattern if the dollar can't find any more strength on the day. It's not exactly a head and shoulders though as this second "shoulder" is noticeably significantly higher that the first; there are also higher lows on this timeframe that suggest a move higher. The pair might have good momentum may catch more momentum if price can close above the 1.28055 level (previous shoulder).

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