After a week of major event risk for Canada we could see USD/CAD price action quiet if broader trends cooperate. The Bank of Canada raised rates by 25 bps but painted a gloomier outlook negating the potential impact of the change in policy. An unexpected decline in retail sales and consumer prices slowing to 1.0% from 1.4% will allow the central bank to remain on hold. Markets have started to price out addition rate hikes which were previously expected, but broader optimism on the back of earnings has keep the Canadian dollar support. The opposing forces could see the pair continue to consolidate remaining within its triangle formation.
Key Technical Levels
A medium term triangle formation has led to increasing consolidation for the pair with the upper bound defined by connecting the 5/25 and 7/6 highs. Support is drawn from the lows on 4/21, 6/22 and 7/15 limiting downside risks. A short-term descending trend line is providing target levels to enter and exit positions. However, traders should be mindful of upcoming event risk including the European bank stress test results.
Quantitative Metrics
The USD/CHF’s ATR has been in a steady decline as Canadian fundamentals and broader sentiment have left traders without conviction. At 128 pips it is one of the least volatile pairs, but accounting for 1.21% of the spot price will limit profit potential. The pair’s Bollinger band width has narrowed to 479 pips placing it near the bottom of most active pairs and increases the attractiveness of the pair.
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