The Canadian Dollar has come under pressure because economic data out of Canada has gone against the optimistic outlook from Stephen Poloz and the Bank of Canada (BoC). Let’s take a look at the USD/CAD and prepare ourselves for the upcoming BoC statement as well as other fundamental risks this week.
The USD/CAD has been rallying sharply from a low on the year at 1.1903 to 1.2447 this week before stalling ahead of the BoC statement. We can see that price action has shifted from a bearish market to a bullish one, breaking above key resistance levels as well as the 200-, 100-, and 50-period SMAs. The RSI has also pushed above 70 and held above 40 after a pullback. This bullish swing is not only due to the soft CAD but can be mostly attributed to the recent USD-strength. The fundamentals should support further upside.
However, as we have seen in this year’s BoC statements, Stephen Poloz seems to be optimistic about the economy despite many calling for a rate cut. now, if price falls back below 1.24 after the BoC statement, it would probably be due to a non-dovish BoC statement. However, because there is a key US GDP release on Friday, we should limit our bearish outlook on the USD/CAD and look out for support first around the 1.2256 support/resistance pivot, especially if the RSI is able to turn up before breaking below 40. In this scenario, we should look for USD/CAD to come back to the highs on the year around 1.28.
Now, if USD/CAD continues falling, the next key support will be around 1.2163, which is another support/resistance pivot. A bullish market should hold above this pivot, so let’s see how the market reacts after Friday’s GDP data.
If USD/CAD does not fall below 1.2163, or does but rebounds above 1.2163 to close the week, we should look for a bullish continuation scenario.
To the downside, a break below 1.21 will likely be needed to convince the market that USD/CAD is still bearish, which puts the 1.19-1.1905 area in sight.
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