USDCAD is showing increased downside forex momentum on its shorter-term time frames, as price is moving inside a falling trend channel on its 1-hour chart. The pair just came off a test of resistance and may be headed for the channel support.
Stochastic is confirming a potential drop, as the indicator is pointing down and reflecting a pickup in bearish forex momentum for the pair. This could lead to a break below the short-term consolidation around 1.1300 and a move until the 1.1200 major psychological support and channel bottom.
Forex Momentum Signal
Shorting at 1.1300 with a stop above the channel resistance around 1.1350 and a target of 1.1200 could yield a 2:1 return on risk, and adding every 50 pips could improve that to 3:1. A tighter stop could also increase the potential reward to risk but it might not leave the trade enough leeway for another test of the channel resistance.
On the other hand, an upside break from channel resistance could lead to a longer-term uptrend for the pair with enough bullish forex momentum. This could lead to a climb up to the previous highs near 1.1450 earlier this month.
A downside break of channel support is also possible if downside forex momentum is strong enough. This could depend on today’s events for Canada, with the CPI figures up for release. Headline CPI could show a 0.3% decline while the core CPI is slated to print a 0.2% uptick. Weaker than expected data could lead to a massive Loonie selloff and a potential upside break past channel resistance.
Strong inflation readings would add support to the BOC’s relatively upbeat stance, which indicated that recent improvements in price pressures were from actual economic progress rather than Loonie depreciation. Bear in mind though that recent data from the US economy has also been strong, keeping the Fed on track to tighten next year and the dollar strongly supported.
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