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Currency Analysis: USDCAD

AS

a Currency Analyst, working in an intelligence unit of a Banks

Treasury Department; Our currency investment strategy deals with

the overall, long-term guidelines that we set up and implement in an attempt to ensure success in meeting our financial goals. Most strategies used to invest in the Money market fall into three general categories: fundamental analysis, technical analysis, or buy and hold the market.

1. Fundamental Analysis: Fundamental analysis maintains that markets may misprice a currency in the short run but that the "correct" price will eventually be reached. Profits can be made by trading the mispriced currency and then waiting for the market to recognize its "mistake" and reprice the currency.

Factor consideration Interest rate Inflation Income level (GDP capita)

USD 0% - .25% 1.2% (Oct 2010) per $46,442 (2009)

CAD .75% 1.4% (2010 est.) $43,100 (2009)

a) Interest rate based on previous informations: US:

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Canada:

b) Inflation based on previous informations: US:

Canada:

c) Government influence: US government influence on USD:

Monetary policy regarding USD is made by the Federal Open Market Committee (FOMC), which consists of the members of the Board of Governors of the Federal Reserve System and five Reserve Bank presidents. The FOMC holds eight regularly scheduled meetings during the year, and other meetings as needed.

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Interest rates are influenced by the Federal Reserve which is an indirect intervention of US government. Management of demand through monetary policy dominates fiscal policy. Open market operations that mean purchases and sales of U.S. treasury and federal agency securities are the Federal Reserves primary tool for implementing monetary policy. The discount rate is the interest rate charged to commercial banks based on needs (Appreciate or to depreciate) Federal Reserve System take initiatives.

Canadian government influence on CAD:

Canada's flexible exchange rate permits citizens to pursue an independent monetary policy. The Bank carries out monetary policy by influencing short-term interest rates. It does this by raising and lowering the target for the overnight rate. (The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or "overnight") funds among themselves; the Bank sets a target level for that rate. This target for the overnight rate is often referred to as the Bank's key interest rate or key policy rate). Some important target for overnight rate: Date Target (%) Change (%) 7 December 2010 1.00 19 October 2010 1.00 8 September 1.00 + 0.25 2010 20 July 2010 0.75 + 0.25 The Bank of Canada adopted a system of eight pre-set dates per year and all the decisions regarding economic factors discussed in those dates. Their monitory policy consequences:

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d) Major/important factors/indicators US:

dates

related

with

the

economic

Published: 12/5/2010 10:17:16 PM By: TradingEconomics.com, US Bureau of Labor Statistics: The unemployment rate edged up to 9.8 percent in November, and nonfarm payroll employment was little changed (+39,000), the U.S. Bureau of Labor Statistics reported on December 3. Published: 11/23/2010 4:15:18 PM By: TradingEconomics.com, BloombergReal consumer spending increased at a 2.8% annualized clip, the fasted The U.S. economy grew at a 2.5 percent annual rate in the third quarter, more than previously calculated, as companies increased shipments abroad and Americans boosted their spending. Published: 11/17/2010 2:59:54 PM By: TradingEconomics.com, FT: Core US Inflation Falls to Record Low.

Canada:

Published: 12/7/2010 4:19:30 PM By: TradingEconomics.com, Bank of Canada: The Bank of Canada announced on December 12 that it is maintaining its target for the overnight rate at 1 per cent. The Bank

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Rate is correspondingly 1.25 percent and the deposit rate is 0.75 percent. Published: 12/5/2010 10:26:27 PM By: TradingEconomics.com, RTT News: Canada's Unemployment Rate Drops To 7.6%. Published: 12/2/2010 9:34:48 AM By: TradingEconomics.com, Statistics Canada: Canada's GDP grows 0.3% in Q3. Published: 11/23/2010 4:26:05 PM By: TradingEconomics.com: Canada's annual inflation rate unexpectedly jumped to a two-year high of 2.4 percent in October, but analysts differed on whether the data would prompt the Bank of Canada to raise interest rates sooner than expected.

e) Candlestick chart of the currency: USDCAD Start date: 7th June 2010 to 9th December 2010 RSI: 30 (Green) MVI: From 30(Blue) to 70 (Red)

Fig 1: Candlestick chart of USDCAD

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f) Variability (Focus on Nov 9th to Dec 9th)

Countr y US US Canad a US

Day/Month/date Monday, November 15th Wednesday, November 17th Tuesday, November 23rd Tuesday, November 23rd

Variables that affect USDCAD U.S. Retail Sales Jump 1.2 Percent in October, Empire Manufacturing Enters Negative Territory USD Consumer Price Index variables The Bank of Canada has a target inflation band of 1 - 3 % and uses CPI and Core CPI as its principle gauges. USD Gross Domestic Product (Annualized), Focus: Economic expansion in US also raises concerns about inflationary pressures which may lead to monetary policy tightening. CAD Gross Domestic Product, Focus: Actual GDP figures usually confirm expectations. CAD Net Change in Employment, Focus: Increases in employment are generally accompanied by higher consumption and expenditure levels. A surge in new Non-farm Payrolls suggests rising employment and potential inflation pressures, which the Fed often counters with rate increases. On the other hand, a consistent decline in Non-farm Employment suggests a slowing economy, which makes a decline in rates more likely. CAD Bank of Canada Rate Decision (1.00%)

Canad a Canad a

Tuesday, November 30th Friday, December 1st

UD

Friday, December 3rd

Canad a

Tuesday, December 7th

g) Government views, Inter-Bank forward rates, Market / traders

view:

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USD CAD @ 13th December 2010 GMT+6, 20:46PM

USD CAD @ 13th December 2010 GMT+6, 20:46PM

USDCAD

Price 1.0046

Chg. -0.0047

Chg. % -0.466%

2. Technical Analysis: Technical analysis maintains that all information is reflected already in the currency price. Trends 'are your friend' and sentiment changes predate and predict trend changes. Investors' emotional responses to price movements lead to recognizable price chart patterns. Technical analysis does not care what the 'value' of a currency is. Their price predictions are only extrapolations from historical price patterns. Here we represent the RSI (Relative Strength Index) and Moving Average to conduct a Technical analysis.

RSI (Relative Strength Index):

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RSI determine overbought and oversold conditions of an asset. In the above graph shows the RSI ranges from 0 to 100. An asset is considered to be overbought once the RSI approaches the level 70, meaning that it may be getting overvalued and is a good to sell the currency. Likewise, if the RSI approaches level 30, it is an indication that the asset may be getting oversold and therefore likely buys the currency.

Fig 2: Relative Strength Index

Here we define

line indicate level 70 and another one is

line indicate

level 30. So that whenever curve line cross the line level 70 then it indicate investor has to sell the currency. And another thing is, whenever curve line cross the line level 30 then it indicate investor have to buy the currency.

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In this graph in the month of 6th May, and then 21th May to 22nd May the line of RSI cross over the level 70 so that investor has to sell currency, on the other hand probably at the 17th March to 22nd March the line of RSI cross the level 30 so that investor has to buy currency.

Moving Average: Moving averages are used to indicate the direction of a trend and to settle the price and volume fluctuation that helps to take decision making. Usually, upward moves is confirmed when a short-term average (e.g.10-day) crosses above a longer-term average (e.g. 25-day). Downward momentum is confirmed when a short-term average crosses below a long-term average.

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Fig 3: Moving Average

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Short run moving average (10): Long run moving average (25): B Buy point indicator: Sell point indicator:

b b S b b u b y b u y

curve curve

At the start month of May MV (25) crosses down through MV (10) or MV (10) cross up through MV (25) so investor has to buy currency. In the middle month of June MV (10) cross down through MV (25) or MV (25) cross up through MV (10) so investor has to sell currency.

At the start month of July MV (25) crosses down through MV (10) or MV (10) cross up through MV (25) so investor has to buy currency.

In the middle month of July MV (10) cross down through MV (25) or MV (25) cross up through MV (10) so investor has to sell currency.

At the end part of August MV (25) crosses down through MV (10) or MV (10) cross up through MV (25) so investor has to buy currency.

In the middle month of September MV (10) cross down through MV (25) or MV (25) cross up through MV (10) so investor has to sell currency

At the end of October MV (25) crosses down through MV (10) or MV (10) cross up through MV (25) so investor has to buy currency.

At the start month of November MV (25) crosses down through MV (10) or MV (10) cross up through MV (25) so investor has to sell currency.

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At the end part of November MV (10) crosses down through MV (25) or MV (25) cross up through MV (10) so investor has to buy currency.

At the start month of December MV (25) crosses down through MV (10) or MV (10) cross up through MV (25) so investor has to sell currency.

Forecast for the upcoming week:

USD/CAD: A recent weekly break and close back above 1.0100 confirms bullish outlook, and should now open the door for a fresh upside extension to test next key resistance by 1.0375 over the coming sessions. For now, look

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for any intraday pullbacks to be well supported above 1.0000. A close back above 1.0300 accelerates.

Recommendations: Based on our survey and the experts suggestions we can give away some suggestions to the clients. Here they are:

USDCAD

Price 1.0046

Chg. -0.0047

Chg. % -0.466%

USD CAD @ 13th December 2010 GMT+6, 20:46PM

Last nights scenario clearly shows that the CAD is depreciated by . 466% against USD and the candlestick chart shows reflects same story.

So far friendly trend shows CAD is depreciating respective to USD so directly one can say stick with the USD. From the technical analysis its visible that the trend is downward and the probability of CAD will go down is high. To make an overnight profit buying USD will be more profitable.

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One thing should be considered cautiously this is the month of December and the historical data shows at January the price of the CAD will go up. So for long term plan holding CAD will be more profitable.

The investor should hold the USD against CAD for short term.

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Bibliography

The additional helping sources in doing this report are:

o http://www.dailyfx.com/ o http://www.bankofcanada.ca/en/index.html o http://www.federalreserve.gov/ o http://www.tradingeconomics.com/Economics/Currency.aspx? symbol=CAD o http://www.bankofcanada.ca/en/monetary_mod/mechanism/index.html


o

http://www.forexpros.com/currencies/usd-cad-forward-rates

o http://www.tradingeconomics.com/united-states/indicators/ o http://www.tradingeconomics.com/World-Economy/Calendar.aspx o http://www.forex-tribe.com/forum/viewtopic.php?id=2950 o http://www.fxstreet.com/technical/currencies-glance/pair.aspx? id=usd/cad

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