In this series, we scale-back and take a look at the broader technical picture to gain a bit more perspective on where we are in trend. The Canadian Dollar has been under considerable pressure for the past three weeks (USD/CAD higher more-than 2% month-to-date) with price now testing a critical resistance confluence ahead of the Bank of Canada rate decision on Wednesday. Here are the key targets & invalidation levels that matter on the USD/CAD weekly chart.
USD/CAD WEEKLY PRICE CHART
Notes: USD/CAD broke above 2016 pitchfork resistance back in June with price rebounding off this same slope into the start of October trade. Initially, the move looked like a breakdown in price – we were wrong! The subsequent recovery fueled a three-week rally with USD/CAD now approaching a critical resistance barrier at 1.3130/55– a region defined by the yearly high-week reversal close, the 61.8% retracement of the June decline and parallel resistance (red). Note that weekly RSI is also testing a resistance trigger extending off the yearly highs in momentum.
A breach/close above this threshold is needed to keep the long-bias viable with such a scenario targeting the 50% retracement of the 2016 decline at 1.3376 backed by 1.3647/86. Initial support rest with the monthly low-week close / 200-week moving average at ~1.2939/70 backed by the 52-week at ~1.2860s and a more significant confluence at the 100% extension at 1.2728.
Bottom line: USD/CAD is testing Big resistance here at 1.3130/55 with the immediate long-bias at risk while below. Keep in mind the Bank of Canada interest rate decision is on tap this week with markets already pricing in a 25basis point hike to 1.75%. From a trading standpoint, a good spot wind down long-exposure and raise stops. I’ll be looking for a reaction at this key resistance barrier, initially for a possible exhaustion/fade opportunity- watch the weekly close here for guidance.
