Since the end of 2012, price action on USD/CAD has been extremely bullish but as of late, it appears to have formed critical resistance after making a 6-year high at 1.2834. The collapse with oil prices, Canada’s largest export, have greatly contributed to weakening the loonie. Since oil prices have rebounded for three consecutive weeks, the Canadian dollar may catch a bid here if price can stay below the 50-day SMA.
The USD/CAD daily chart shown above highlights a triple-top pattern that is currently respecting 1.2830 zone. The first key high occurred at the end of January, roughly a week after the Bank of Canada surprised the markets by cutting the overnight rate to 0.75% from 1.0%. Expectations are for the Bank to keep rates steady at April 15th monetary policy meeting. While economic data from Canada has remained weak since the last meeting, the rebound in oil prices will likely help ease declining inflation concerns.
Critical support comes from the heavily tested and respected 1.2400 handle. Below this level, further support may come from 1.2311 and 1.1988, which are both the 23.6% and 38.2% Fibonacci retracement levels of the 1.06 to 1.28 rally. A test of one of these noted levels may need to occur before we see a resumption of the strong US dollar trend.
The trade: Short USD/CAD at 1.2380, with a stop loss at 1.2450, and a take profit at 1.2240. The Risk/Reward Ratio is 1:2.
Edward J. Moya
WorldWideMarkets Online Trading