There are going to be two factors to watch out for when it comes to the USD/CAD in the next couple of weeks. It’s likely that it will be a tug of war between oil prices and the European financial crisis, more specifically Greece. A classic battle of bulls and bears.
The price of oil is inching upward on positive economic data showing signs of a slow but sustained recovery. This is compounded by the fact that Asia will continue to consumer more and more oil as it ramps up production in anticipation of a global recovery.
This rise in oil is in direction tension with the European financial crisis, which hasn’t been in the news as of late. Although coverage is spotty and the public has become fatigued of hearing about it, there might be a silent disaster brewing in Europe.
In terms of forex trading strategies, here’s how it might affect the USD/CAD. If there is continued low coverage of Greece, and possibly Spain and Portugal, the CAD will get strong as commodity prices rise. The CAD is heavily related to global demand in commodities. Canada produces many of the world’s raw materials, including oil.
If there is more news coverage on the state of the European crisis, look for the CAD to get weaker on that news. Not only will there be an expected decline in the price strength of the CAD, gold and the USD will rise overall.
The USD and oil prices have an inverse relationship, unlike the CAD and oil. As the value of the USD declines, especially if it declines broadly over a basket of currencies, the price of oil tends to climb. This is because it makes it cheaper for foreign currencies holders to buy oil.
If a currency trader has a forex demo account he or she can practice on, the price movements of oil, USD and CAD might be a good one to test out. You can even throw in gold in there for good measure. If the European crisis deepens and there is a drop in oil prices, watch for gold prices to sky rocket even higher. Gold might be what oil was a few years ago.