The weakness in the oil price is receiving almost daily updates as the plunge continues unabated. Clearly this slide has a major impact on oil producers but it also affects those world economies where oil makes up a significant part of a country’s GDP.

One of these is Canada - oil is the country's largest export and it is the sixth largest producer in the world. It is six months

(Forex, Shares, 30 Jul 2015) since we last looked at the fate of the Canadian dollar and given what has been happening in oil it is worth revisiting the outlook. Back then the trend was clearly up for the US dollar/Canadian dollar (USD/CAD) and was expected to continue. This has transpired but I don’t think many would have expected quite such a severe move. Since July last year USD/CAD has gone up by 11% which is a sizeable six month move in the forex market. This puts the currency, often referred to by its slang name ‘the loonie’ (a nod to the common loon bird), back to levels not seen since early 2003.

(Click on chart to enlarge)

There are calls for the central bank and the government to do more to try and stimulate the Canadian economy, which by even the most optimistic forecasts is only expected to grow around 2% this year. But with the price of crude oil an important factor there is concern that any attempt at stimulus is going to be somewhat futile if and until the price of the commodity picks up.

It doesn’t necessarily mean there are easy gains to be made again betting against the currency. The trend for USD/CAD is still clear and further moves upwards would be expected. But because the move in the past six months has been somewhat parabolic, it is a market that does look ripe for at least some sort of correction. This can be painful if you are buying in at the end of the latest leg of the trend. Bearing this in mind, a strict chart and level approach is the right way to play the USD/CAD market.

In the last six months by my reckoning there have only been seven weeks where the USD/CAD has lost ground. An obvious aggressive trade if you wanted to jump on board this trend today would be to have the stop loss at least the other side of last week’s low, which was 1.4175. Based on last week’s close of 1.4580 this is a risk in excess of 400 points. While some people may baulk at that sort of number, if you want to try and catch the big trends you need to give the market room to move.

(Click on chart to enlarge)

Another approach would be to wait and see if USD/CAD slid back, giving a lower entry point. This is always attractive but does run the risk of the market carrying on up as expected but without a handy pullback to jump in on. You would then miss out on the opportunity to profit. But if the currency pair did decide to take a little breather, the first point to watch for a bounce would be those lows for the last week ahead of the 1.4175 zone.

It should be another interesting year with plenty of volatility. Wherever someone decides to enter at the moment the trend in USD/CAD is most definitely still up and only a slide below 1.3000 would start throwing it into question.