USDCAD is gearing up to test the bottom of its descending triangle pattern once more, after finding resistance around the 1.2500 levels. Price is nearing the support at the 1.2400 major psychological mark and may be due for a bounce.
Stochastic is moving up from the oversold zone, indicating that buying pressure is building up. This could lead to another bounce off 1.2400 and a potential rally back up to 1.2500. However, if selling momentum stays in play, a downside break of support is possible. This could mark the start of a 400-pip drop, which is roughly the same height as the chart pattern.
Earlier in the week, the BOC decided to keep interest rates on hold at 0.75% as expected. Apart from signaling an improvement in its inflation outlook, the BOC also hinted that they might no longer to ease monetary policy further. After all, crude oil prices appear to have bottomed out and the Canadian economy is also being supported by the strong pickup in the US economy.
Later on, the US is set to print its NFP reading for February and possibly show another improvement in hiring. This could pose an event risk for this setup, as a strong jobs figure might push the Fed closer to hiking interest rates. This might even lead to an upside break from the triangle resistance around 1.2500 and a 400-pip climb for the pair.
The path of least resistance is to the upside, as the US economy is in a fundamentally stronger position compared to Canada. Hiring and spending have been subpar for the latter, as the impact of the oil price slump could still weigh on the country’s economic prospects. Meanwhile, the US economic recovery continues to gain positive momentum.
Going long at 1.2400 with a stop around 1.2300 and adding on a potential break past 1.2500 could be good entry points for a longer-term position on USDCAD.
By Kate Curtis from Trader’s Way