After bouncing off the top of the triangle on its 1-hour time frame, USDCAD is gearing up to test the triangle support ahead of Canada’s CPI release in the US trading session. Price is consolidating around the 1.2450 minor psychological level, close to the bottom of the triangle at the 1.2400 major psychological support.
A bounce off the triangle bottom might mean another move to the top, especially since stochastic is starting to make its way higher. This could lead to a rally until the 1.2550-1.2600 psychological resistance levels.
USDCAD Triangle Setup
On the other hand, a downside break from the triangle might mean more losses for USDCAD, especially if the CPI readings from Canada come in stronger than expected. Headline inflation could post a 0.4% decline while core inflation might see a 0.1% uptick.
Other event risks for this USDCAD setup today include the release of US CPI figures, which could print a 0.6% decline for the headline figure and a 0.1% uptick for the core reading. Also due from the US today are its durable goods orders data, which might show small rebounds for the core and headline readings.
For the rest of the week, the US preliminary GDP reading for Q4 might also provide volatility for this trade setup. The report could show a downgrade from 2.6% to 2.1%, which could lead market participants to push their Fed rate hike expectations back further. Chicago PMI, pending home sales, and revised consumer expectations data are also up for release on Friday.
A breakout in either direction could mean around 400 pips in losses or gains for USDCAD, as this is the same height as the triangle pattern. A move below the 1.2400 support level could lead to a test of 1.2000 later on while a rally past 1.2500 could mean a climb until 1.2900. Oil price changes also continue to affect USDCAD movements, as the OPEC has indicated that it might have an emergency meeting soon.
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