Technical Analysis of USD/CAD
The Canadian dollar continued to appreciate against the greenback as traders increased their appetite for risk. With the GDP expected to increase 0.2% in May, after expanding 0.3% in the previous month and with input costs projected to weaken for the second consecutive month in June, speculation for a Back of Canada rate hike is likely to be dampened. Should the BoC continue its wait-and see approach, the main game changer for the USDCAD this week would be Wednesday’s FOMC interest rate decision. Considering Friday’s good news on second quarter GDP and the extension of Operation Twist at the last meeting, it is rather unlikely that the Fed will make the much speculated and partially priced in movement of further QE, leaving room for the US dollar to gain strength. As the USDCAD is currently bouncing off of the lower bounds of the downward channel carried over from June, the technical set up may be supportive of a correction in the price movement. With the pair currently hovering around key support at 1.004 (61.8% Fibonacci retracement) and the upside break in the RSI on the daily chart, we could see a bullish breakout all the way up to resistance area at 1.0224. In the alternative scenario, a continuation of the downtrend trading could send the pair to retest May lows at 0.9806.
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