USDCAD recently bounced off the bottom of the descending triangle on its 1-hour forex chart and is making its way to the top. Price could test the resistance near the 1.2600 major psychological level and make its way back down.
Stochastic is almost in the oversold region though, which means that sellers are exhausted and that buyers might take control of price action. If buying pressure is strong enough, the pair could make a break past the triangle resistance and go for more gains. In this case, the rally might last by around 400 pips, which is roughly the same height as the chart pattern.
Similarly, an increase in selling momentum could lead to another test of the triangle support or perhaps a break lower. If that happens, the resulting selloff could last by around 400 pips as well.
The main event risk for this setup today is the release of Canada’s retail sales figures, which might post downside surprises due to the downturn in hiring recently. Headline retail sales could show a 0.3% decline while core retail sales could see a 0.7% drop.
Larger than expected declines could lead to a strong upside break from the triangle resistance, although demand for the US dollar has also weakened lately. The recently released FOMC minutes showed that not all officials are confident that the US can sustain its strong recovery. Some cited external risks stemming from China, the financial uncertainty in Greece, and the conflict in the Middle East.
Nonetheless, the path of least resistance is to the upside since the Fed isn’t inclined to ease further while the BOC might implement another rate cut if economic data continues to disappoint. Risk appetite has been weaker so far, although a pickup in demand for higher-yielding currencies might be seen if Greece is able to secure a debt deal before the end of the week.
By Kate Curtis from Trader’s Way