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USDCAD Risks Reversal Below 1.3150 on Canadian CPI

USDCAD Risks Reversal Below 1.3150 on Canadian CPI

Talking Points


Chart Created Using FXCM Marketscope 2.0

Technical Outlook

  • USDCAD testing key resistance confluence at 1.3138/50
  • Confluence support & near-term bullish invalidation 1.3060/70
  • Subsequent support objective at the 100DMA ~ 1.2937
  • Resistance breach targets 1.3217 & 1.3283-1.33
  • Key Event Risk Ahead: Canada Consumer Price Index (CPI) tomorrow

USDCAD 30min

Notes: USDCAD is trading within the confines of a well-defined ascending pitchfork off the October lows with a steeper embedded median-line formation guiding the pair over the last two days. The rally encountered key resistance today at 1.3138/50 – a region defined by the 100% extension (two equal legs up), the 50% retracement of the late-September sell-off and the September open.

The rally is at risk below this resistance zone with a break below near-term confluence support at 1.3060/70 (near-term bullish invalidation) needed to validate a turn lower. Such a scenario targets objectives at 1.3024, 1.2987 & more significant support at 1.2937/50. A breach of the highs invalidates our near-term outlook with such a scenario targeting the 61.8% retracement at 1.3217 backed by 1.618% extension at 1.3283.

A quarter of the daily average true range (ATR) yields profit targets of 28-31pips per scalp. Caution is warranted heading into Canada CPI tomorrow with the release likely to fuel added volatility in loonie crosses. Consensus estimates are calling for an uptick in the core rate of inflation to 2.2% y/y, up from a previous print of 2.1% y/y. On the back of this week’s BoC interest rate decision where the central bank cited that inflation risks were “roughly balanced,” a stronger-than-expected read could cap loonie losses in the near-term and change the break of support we’re looking for.

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Relevant Data Releases Next Week

Other Setups in Play:

---Written by Michael Boutros, Currency Strategist with DailyFX

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.