USD/CAD Retraces Most of Its Move Since Mid-October

USD/CAD has reversed and retraced 78.6% of the move from mid-October.

From October 10th to October 29th, USD/CAD was pushing lower from 1.3362 down to 1.3030, threatening to breakdown from the symmetrical triangle the pair has been in since early 2016. 

Source: Tradingview, City Index

The market was pricing in a more hawkish BOC than the FOMC on October 30th, when both Committees coincidentally happened to be meeting on the same day.  However, since the October 30th, USD/CAD has reversed and retraced 78.6% of the move from mid-October.  So, what has changed?

First is that although the BOC left rates unchanged, they lowered their growth outlook.  They were less hawkish then expected, and therefore, send USD/CAD bid off the lows.  Second is that the Canadian data from since October 30th has been worse than expected.  Specifically , the Ivey PMI was 48.2 vs 53.0 forecast and they employment change for October was -1,800 vs +20,000 expected.  US manufacturing data and employment data was roughly in-line to better than expected.

Technically, on a daily timeframe, USD/CAD put in a false breakdown below the rising trendline of the symmetrical triangle at the 38.2% Fibonacci retracement level from the September 2017 lows to the December 2018 highs.  The pair formed a falling wedge into the low and broke out higher reaching the 100% retracement target of the falling wedge rather quickly.  Price is currently testing the 200-day moving average at 1.3275.

Source: Tradingview, City Index

On a 240-minute time frame, we can see how USD/CAD broke out of the falling wedge and has retraced back to the 78.6% Fibonacci retracement level from the highs on October 10th to the lows on October 29th and is currently trading in an upward sloping channel.   There is a large confluence of resistance which comes in slightly above currently levels (1.3260).  In addition to the 200-day moving day moving average at 1.3275, that 78.6% retracement level is at 1.3280.  There is horizontal resistance at 1.3290 and the top trendline of the channel also crosses near that same level.  Support is now at the bottom trendline of the channel at 1.3247.  Below that is horizontal support near 1.3210.  There is then major support as the bottom trendline of symmetrical triangle (on daily and weekly timeframe), which crosses near 1.3140.  In addition, the 200-week moving average crosses near that same level!

Source: Tradingview, City Index

What can cause USD/CAD to finally break out of the apex of the symmetrical triangle the pair has been in for so long?  For starters,  Bank of Canada Governor Stephen Poloz is speaking later this evening  at the Federal Reserve Bank of San Francisco.  Watch for changes in his “less hawkish” language from the October 30th statement.  In addition, Canada is set to release CPI, ADP employment data, and Retail Sales next week.  These figures will give a better indication of how well the Canadian economy is holding up. 

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.