USD/CAD’s rally has been showing signs of exhaustion, even though the pair made a recent strong break above the 1.0550 minor psychological resistance on the Fed taper and the Canadian economy’s weak performance.
The pair has formed a top around the 1.1100 to 1.1200 levels, indicating that dollar bulls are hesitant to push the pair higher. It has formed a complex triple top, which is somewhat a reversal signal for short-term traders.
However, this could be a good opportunity for USD/CAD buyers to take advantage of the long-term rally correction. A buy signal could show when the price tests the 61.8% Fibonacci retracement level on the daily chart’s latest swing high and low, as this coincides with the former resistance area.
USD/CAD Buy Signal and Forecast
A bounce off the 1.0500 to 1.0600 level could soon lead to a test of the former highs near 1.1200 if fundamentals continue to favor the US dollar. For now though, the outlook for the dollar is bearish since the FOMC meeting minutes revealed that not all Fed officials support Yellen’s optimistic assessment of the economy. In the longer-run, the Fed is still likely to carry on with its taper plan of trimming $10 billion in monthly asset purchases while the BOC might be considering measures to spur growth in the Canadian economy.
A shallow retracement might lead to an early USD/CAD buy signal though, as USD/CAD could also find support around the 50% to 38.2% Fibonacci retracement levels. These are closely in line with psychological inflection points, which means that a good number of buy orders could be located there as traders watch those areas closely.
Stochastic is moving towards the oversold region though, indicating that Loonie bulls and dollar bears are in control of price action at the moment. The oscillator is almost in the oversold area and a turn higher might indicate that dollar bulls are ready to jump back in.
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