USDCAD formed lower highs and higher lows in the past few weeks since late May, creating a symmetrical triangle pattern on its 4-hour time frame. Price has broken above the triangle resistance, indicating that buyers are gaining the upper hand in price action.
The chart pattern is approximately 500 pips tall so the resulting breakout could last by the same amount, taking the pair up to the 1.3500 major psychological resistance. The 100 SMA is above the longer-term 200 SMA, confirming that the path of least resistance is to the upside, and the gap between the moving averages is widening to show a pickup in bullish pressure.
However, stochastic is already indicating overbought conditions so buyers might need to take a break and let sellers take over from here. If so, a pullback to the broken triangle resistance at the 1.3050-1.3100 levels could take place before the climb resumes.
Falling crude oil prices have been mostly responsible for driving Loonie movement these days, as the commodity has slumped to its April lows. Data from the Canadian economy has come in mostly stronger than expected last week but traders appear to be reacting to risk aversion instead.
US CB consumer confidence and new home sales data are due today, along with the Richmond manufacturing index. The consumer confidence index is expected to fall from 98.0 to 95.6 to indicate weaker optimism while new home sales could rise from 551K to 560K.
There are no major data points from Canada for the next couple of days, although the US crude oil inventories report due tomorrow could push this pair around. Apart from that, the FOMC statement could also have a strong say in USD price action, as cautious remarks could spark weakness while upbeat comments could allow the rallies to carry on.
Canada is set to print its GDP on Friday and a 0.5% monthly contraction is eyed, likely putting additional drag on the Canadian dollar. Also due then is the US advanced GDP reading for Q2, which might show a stronger pace of growth at 2.6% compared to the earlier 1.1% expansion in Q1.
By Kate Curtis from Trader’s Way