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USD/CAD is now falling and approaching an important resistance line. This happens as the US dollar is strong, with traders focusing on the collapse of the Pound. The loonie has reasons to rise – a strong economy that is accelerating. The pair is now facing a test:

The dollar is storming through the markets. This is strongly felt in GBP/USD. The Pound totally collapsed, broke through the key level of 1.50 and triggered more stop order. It stopped only at 1.4780, the last line that I mentioned in the GBP/USD forecast.

Also the Euro, the Aussie and others are surrendering to the dollar. But let’s focus on one strong currency: the Canadian dollar.

After failing to break the 1.04 line last week, it retreated back up and stopped to rest. Now it has new fuel. The monthly release of GDP showed a stronger than expected rise in December, 0.6%. This concludes a strong fourth quarter, with a growth rate of 1.2%, not bad at all!

Translating the number to an annualized format, the Canadian economy grew at a pace of 5% in the Q4, better than 4.5% that was predicted. This still lags the strong 5.9% growth rate that was reported in the US. So, if the only thing that matters is GDP, then the Canadian dollar should stay behind as well.

The major difference between the two North-American countries is seen in the job market: while jobs are growing in Canada, they continue to bleed in the US. The unemployment rate also reflects a significant gap: 8.3% in Canada and 10% in the US.

What’s awaiting us in the American job market? Here’s my Nonfarm payrolls preview.

USD/CAD

Following the Canadian GDP release, USD/CAD fell from 1.0570 to 1.0470 at the time of writing. For this pair, 100 pips is a lot. It’s still not close enough to the critical 1.04 line mentioned over and over in my USD/CAD forecasts. But it’s getting close.

If this line is broken, 1.02 is the next and last support line before the ultimate line – USD/CAD parity. 1.02 was the 2009 low and was also approached this year.

Upon another retreat, 1.0680 is a minor resistance line with 1.0780 being a big stronghold.

Next Events

Anything can happen in this busy week, that already began with a strong start. The next big event in Canada happens tomorrow: the Bank of Canada announces the interest rate.

While here there’s no difference between the US and Canada on the low rates, the Bank of Canada has a clear schedule for raising the rates: June 2010.  As in previous rate decisions, an acceleration of this schedule will boost the Canadian dollar, but this probably won’t happen.

I’ll continue following this strong currency.

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