The U.S. dollar/Canadian dollar cross pair does not receive a ton of attention thanks to the fact that the CAD is not one of the big four currencies. However, thanks to the fact that the U.S. and Canada are neighbors and the currencies are exchanged extremely frequently, watching this pair can give you a very strong idea of what the USD is doing. When you have this data, many other trades, including the EUR/USD, become easier to predict.
For example, if you look at the trading day on Wednesday, August 3rd, you can see that the USD gained slightly against the euro. The price dropped to 1.1149, marking a decline of 0.62 percent. In the Forex world, that is a big move over the course of the day. Because this market is so highly trafficked, it is deemed to be highly efficient, and a move of this magnitude is considered pretty strong. However, if you look at the USD/CAD, the price dropped there, too. The pair settled at 1.3067, a fall of 0.30 percent on the day. Again, this is a big move, albeit not quite as strong as what we saw with the euro against the dollar. Because the assets are flipped here, although both prices dropped, the dollar gained against the euro in dramatic fashion, but lost against the Looney in the same way. It means that the U.S. dollar is strong, but not nearly as strong as some are believing. Other currencies, namely the CAD, are showing even more strength, although that strength isn’t what it seems on the surface. Let’s take a look.
There are issues with this line of thinking, and it’s best to address them upfront so that potential complications can be avoided more thoroughly. For one, this is just one day of data, and although illuminating as an example of showing potential market inefficiencies, one day of data does not make for a world of reliable information. It is always best to consult long term data and trends so that the short term fluctuations are smoothed out. This is a strong point, and in this instance the anomaly is the point, but this will not always work out in your favor, especially with short term trades and binary options trades.
The other big issue to acknowledge when looking at a trade trend like this is that this is not merely a chain of currencies. Following the chain can help, but the impact is not always as cut and dried as it should seem. For example, the euro fell against the dollar, and the USD fell against the CAD, but does that mean that the EUR fell against the CAD? In the majority of situations, this will be the case, but not always. This is a good rule of thumb, but then again, it is a generality, and not always the reality. Before you follow this generality in your personal trading, be sure that you do thorough research and analysis of your own to stay as profitable as possible.
On the same trading day, the EUR/CAD did move in the same direction that the EUR/USD did, indicating that it followed suit with the U.S. dollar’s movement, but the degree of change was far smaller than you might have expected at just 0.01 percent. This indicates that although the USD seemingly led the charge, the movement was not as permanent or as forceful as you might think at first glance. Again, be sure that you are evaluating movement like this so that your future trades are as accurate as possible, and not just following general rules of thumb.