Looming renegotiation of NAFTA turns Loonie weaker

November 11, 2016
Looming renegotiation of NAFTA turns Loonie weaker August 17, 2018 Riya Joshi

canadian dollarThe considerable increase in the Forex market volatility, brought about by the surprising victory of Donald Trump in the US election, is not expected to subside sooner. In fact, many analysts believe that the chaos has started only now as no one has a clear idea of the foreign policies and capabilities of the US President. Ironically, in the past, Trump has clearly expressed his opinions on various issues. Still, the analysts have a divided opinion.

The Canadian economy, which is highly dependent on the US economy, is certainly going to be affected. We believe that the Loonie would weaken considerably against the major currencies including the Euro dollar in the weeks ahead due to the reasons below.

The US President-elect Trump had stated during the election rally that he will renegotiate the NAFTA agreement as it does not seem to benefit the US in any manner. The US is the largest trading partner of Canada. More than 70% of the Canadian exports reach the US ports. The victory of Trump will keep the Canadian dollar weak and volatile at least for the next few weeks.

Reuters

The Canadian government had failed to sign a free-trade agreement (CETA) with the EU, during the Brussel’s summit held in the last week of October. The delay may have had on affect the export of beef and pork products from Canada. Though the deal was eventually agreed on Sunday 30 October 2016 after the opposition in Belgium.

Crude oil, which is one of the main export products of Canada, remains weak at $45.27. Even though the correlation between the Canadian dollar and the crude price has decreased considerably in the past few months, still, weakness in the crude price would have a negative impact on the crude oil.

On the contrary, the Euro zone recorded inflation growth rate of 0.5% y-o-y in October, the highest since 2014. The reported growth was in line with the analysts’ forecasts and higher than the 0.4% growth reported in the previous month. The robust inflation rate is expected to keep the Euro dollar stronger. Based on the above discussion, we infer that the Euro would remain strong in the near-term future.

The EUR/CAD pair has a strong support at 1.4380. The momentum is rising and the accumulation/distribution indicator shows that the investors are increasing their long position in the EUR/CAD pair after a period of consolidation. Thus, we can expect the EUR/CAD pair to begin its upward movement soon. The historic chart indicates that the next major resistance for the EUR/CAD pair is at 1.5540.

EUR/CAD Pair: November 11th 2016

EUR/CAD Pair: November 11th 2016

So, a currency trader can go long in the EUR/CAD pair near 1.4640. The trader should compulsorily use a stop loss order below 1.4440. The profit for the long position can be booked near 1.4860. Traders with risk appetite can wait for a rally until 1.5100.

A binary trader can invest in a one touch call option to benefit from the forecast. For the suggested call option trade, a binary trader should pick a target level of 1.4800. Any date between 10th and 15th of December can be chosen as the expiry date for the call option contract.

About the Author

Riya Joshi

Riya Joshi Editor

Riya will providing you an insight in today's forex markets , which currencies are performing well and which ones look to be on the way down.


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