USD/CAD drops to key support as BOC keeps rates unchanged

The Bank of Canada kept its key overnight rate unchanged at 0.5%, while the USD/CAD pair fell to a key rising trend line support despite the drop in the oil prices.

The EUR is at the center stage of the FX markets

Majors are largely being guided by the action in the common currency as the Monday’s sharp reversal in the EUR/USD pair triggered speculation that the greenback could have bottomed out.

Moreover, the EUR/USD is a classic yield differential play. Hence, rebound/signs of strength in the EUR/USD are being read as an indication that Fed tightening has been priced-in.

This could be the reason behind the strength in the Canadian dollar. BOC was expected to keep the rates unchanged; hence the status quo policy statement is unlikely to be the reason behind the strength in the CAD.

If anything the bank sounded a little bit dovish… It said, “The strong third quarter growth is expected to shift to more moderate growth in the fourth quarter”.

Nevertheless, continued strength in the EUR/USD could eventually trigger a breach of the rising trend line support on the USD/CAD pair.

Daily chart

usdcad daily.jpg

Source: Netstation (www.netdania.com)

Back-to-back day end closes below the rising trend line support would open doors for a completion of the upward sloping head and shoulder formation seen on the weekly chart below

The weekly chart shows upward sloping head and shoulder

usdcad.jpg

Source: Netstation (www.netdania.com)

The neckline support stands around 1.2820.

Bullish scenario – Rebound from the rising trend line followed by a daily close above 1.3590 could translate into 300-400 pip rally to 1.38-1.39 levels.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s