USDCAD has formed lower highs and higher lows, creating a symmetrical triangle pattern on its daily time frame. Price is just coming off a test of the triangle resistance and looks ready to make a test of support around the 1.2800 major psychological level.
The 100 SMA is below the 200 SMA on this time frame, signaling that the path of least resistance is to the downside. This suggests that a downside break of the triangle support might be possible, sending USDCAD lower by an additional 700 pips, which is roughly the same height as the chart formation.
In addition stochastic is on the move down from the overbought area, which means that sellers are taking control of price action. RSI is on middle ground, however, barely providing any strong directional clues at the moment.
Data from the US came in line with expectations yesterday. The core PCE price index was up 0.2% as expected while personal spending rose 0.4% even as personal income was slightly weaker than expected at 0.2% versus the consensus at 0.3%.
The Canadian dollar got another boost from a larger than expected draw of 4.1 million barrels in stockpiles compared to the projected reduction of 2.3 million barrels. Apart from that, oil strikes in Norway and Nigeria are also putting downward pressure on supply.
US initial jobless claims and Chicago PMI are up for release today and weaker than expected reports could mean more declines for USDCAD. Meanwhile, Canada has its monthly GDP report up for release and a 0.1% expansion is expected.
By Kate Curtis from Trader’s Way