USDCAD is moving inside a rising channel on its 1-hour time frame but is testing the resistance for a countertrend FX setup signal. Price is testing the top at the 1.1150 minor psychological level and may be due south. The bottom of the channel is near the 1.1000 mark, paving the way for a potential 150-pip trade if price moves lower.
Stochastic is indicating a possible bounce though, as the indicator is moving out of the oversold zone. In this case, another test of the channel resistance might be possible or perhaps an actual breakout if buying pressure is very strong. A break past the 1.1200 mark could confirm that more gains are in the cards for USDCAD.
FX Setup Scenarios
On the other hand, a return in selling pressure could lead to a drop to 1.1000 and a potential FX setup break of channel support if the downward momentum is strong enough.
Bear in mind that data from Canada has mostly disappointed, as the recent retail sales figures fell short of expectations. US durable goods orders data is due today and strong figures might lead to an upside channel break. Take note though that the headline figure is set to show a 17.7% decline while the core figure could print a 0.7% reading, with weaker than expected data likely to trigger a short-term selloff.
There are no reports due from Canada but it appears that risk sentiment isn’t favoring the Canadian dollar for the time being. Geopolitical tension sparked by the US airstrikes on ISIS in Syria are weighing on higher-yielding commodity currencies, along with RBNZ Governor Wheeler’s remarks on wanting to see more sustainable exchange rate levels for the Kiwi.
The path of least resistance for this pair is to the upside, which suggests a better chance of success for a trend-following FX setup at a channel support bounce.
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