USDCAD continues to trend lower but seems to be in a correction from its current selloff. Applying the Fibonacci retracement tool shows that the the 50% level lines up with the trend line resistance and the 1.2400 major psychological level that might keep gains in check.
The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside, which means that the downtrend is more likely to continue than to reverse. The 100 SMA is already holding as dynamic resistance at the moment but both RSI and stochastic are still on the move up to signal that the correction is still in play.
The line in the sand is at the 61.8% Fib or the 1.2500 handle, which lines up with a previous support zone. A convincing break past this area could signal that buyers are getting stronger and are ready to sustain an uptrend.
The main event risk for this setup is the FOMC statement as the central bank will also release its updated growth forecasts, which might contain revisions on account of the recent hurricanes. In this meeting, a press conference is also scheduled so traders are likely to pay close attention to Yellen’s responses to get clues on whether December tightening is still possible or not.
Canada’s top-tier events aren’t scheduled to take place until Friday, during which the CPI and retail sales figures will be printed. Stronger than expected results could continue to fuel expectations for another BOC interest rate hike before the end of the year.
Both the BOC and the FOMC have hiked interest rates twice this year but the former has been more of a surprise compared to the latter. In fact, rate hike expectations for the Fed have considerably fallen in the past few months on downbeat inflation and slowing employment.