Descending Triangle: Since pushing to a high on the year just under 1.28, USD/CAD has been consolidating in February. The 4H chart below shows the pair in a descending triangle pattern, where support around 1.2380 has been holding several times, while the resistance has been declining.
CAN Retail Sales: Today (2/20), Statistics Canada reported retail sales data for December. We saw a -2.0% reading for a month on month basis in December. The forecast was around -0.3%, and the previous reading was 0.4% in November. The core reading, excluding auto, came in at -2.3% after a 0.6% reading in November. Forecasts called for a print around -0.7%. For the headline number, -2.0% was the sharpest month to month dip since December 2012, when it came in at -2.1%.
USD/CAD Reaction: On the back of Canada’s disappointing retail sales data, the USD/CAD was able to hold above the triangle support again and is now looking to test the triangle resistance around 1.26.
Bullish Continuation Scenario: A break above 1.26 can revive the uptrend and open up the 1.28 area again. In the monthly chart, we can see that USD/CAD has entered a support/resistance zone, but there is still room to rally until the 2008-2009 highs at and just above 1.30.
Consolidation/Correction Scenario: If USD/CAD holds below 1.26, then the consolidation is still going, but only a break below 1.2380 would signal further bearish correction. Above 1.2380-1.24, the market is neutral-bullish, with emphasis on the bullish component.
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