Currency trading is one of the most volatile and exciting vocations in the economic trading arena. For those who don’t know, currency trading dwarfs the activities of stock market trading many times over every single day. Trillions of dollars in currency trades are undertaken whenever the markets are open, and one of the most popular currency pairs in North America is the USD/CAD currency pair.

If you’re wondering what factors are important when it comes to determining whether you should place call options (buy the USD/CAD pair) or put options (sell the USD/CAD pair), they are pretty much the same for every single currency. This is to say that factors such as the following will play a big part in your decision-making process:

• Interest Rates
• Inflation Rates
• Monetary and Fiscal Policy
• Hawkish or Dovish Policies
• Employment/Unemployment Rates
• GDP Growth Rates (annual, quarterly and monthly)

The aforementioned factors are but a handful of the many considerations that must be factored into your decisions about going long or going short on currency pairs.

Today we will take a look at some of the most important drivers of the USD/CAD currency pair recently and how they will affect the way you trade the pair. Just recently, Canada reported its highest unemployment rate since 2014. Naturally, negative economic data such as this will be bearish for the currency and result in put options been placed on the Canadian dollar. But remember since you’re trading binary options on the pair, you would place call options on the USD/CAD currency pair. Take a look at the following graphic which represents this information.

Unemployment in Alberta in Canada rose to its highest level since 1996. The number that was recorded was -5700, which is surprising given the 24,100 gain in employment in January. Additionally, housing starts were weaker than the consensus forecast by a margin of 20,000. Housing starts and employment are among the most significant drivers of currency strength or weakness, and Canada has sustained two blows to its currency with bearish sentiment on both accounts. Currency traders will now be looking towards the March 9 meeting held by the Bank of Canada where the overall tone is expected to be significantly less bullish when the Governor Steven Poloz offers an official opinion.

Negative sentiment drives the Canadian dollar lower against the USD

Various surveys have revealed that trader sentiment towards the Canadian dollar is on the decline. This naturally lends itself to an increase in the number of put options on the currency. Over the past several trading days, we have seen sentiment sour vis-a-vis the Canadian dollar in its interactions with the US dollar. This coming week for the USD/CAD currency pair is an important one in that it will reveal the direction of movement for the upcoming trading sessions. If the trend tends towards bullish sentiment, we could be looking towards strong gains for the US dollar moving forward. Let’s take a look at some of the technical indicators to give us some idea as to which way things are moving.

As you can see from the above chart, the US dollar has appreciated significantly against the Canadian dollar all the way through until February 2016. The CAD regained some ground after briefly approaching 1.46000 to the USD and then dropping below 1.38000. In the session on Friday, 5 February 2016, the Canadian dollar lost ground. The first support level is 1.3638, the second support level is 1.3611 and the third support level is 1.3535. If we look at the resistance levels for the USD/CAD currency pair, the first resistance level appears to be 1.3800, the second resistance level 1.4124 and the third resistance level 1.4540. Remember that one of the factors impacting heavily on the currency pair is the unemployment rate that was reported at its highest level in 2 years just recently. This effectively brought about an end to the rally in the Canadian dollar as evidenced by the turnaround at 1.38000.

Reversal Following Employment Data Release

Presently, the USD/CAD currency pair is trading at 1.39126 which is 1.16% higher. But gains by the greenback have been tempered by overall dollar weakness on global bourses. For example, on Thursday last week, the dollar recorded its largest single day drop in 2 months against the European currency. Recall that the Canadian dollar is a commodity currency owing to Canada’s vast supply of natural resources, notably oil. With oil prices being as low as they are, it makes sense that the Canadian currency has come in for some serious tap in recent months – as evidenced by the current exchange rate. Based on the employment numbers alone, and the pressures inherent in commodity prices notably crude oil and negative sentiment about the Canadian dollar, one would have to consider placing call options on the USD/CAD currency pair.