From a low of 0.9444 at the end of April, the USD has had a good run this past month, hitting a high (twice) at 0.9816 this past week. The pair closed out last week at 0.9758. The rally from high to low is the the biggest we have seen since October of 2010 which is when this downtrend became entrenched.
USD/CAD Daily (see attached).
Source: FreeStockCharts.com
The long-term downward sloping trend line was broken early last week and the rate has consolidated largely between 0.9750 and 0.9816. This lack of momentum on the breakout, resting at the trendline, decrease in volatility and holding at the upper Bollinger Band indicates a pullback is likely in the short term. A move below 0.9740 would confirm with an initial profit target of 0.9673. Further support enters the market along the upward sloping trendline which will begin the week at 0.9730.
A drop below that upward sloping trendline indicates that the upside breakout of the longer term downtrend was a false move, and that a lower rate or a ranging market will prevail (if 0.9444 holds in future weeks). Weekly average (14) price movement is 175 pips, so if we do see a decline 0.9568 is likely to be an extreme low that could be seen (average plus two standard deviations). This is important because on a daily basis it appears volatility is likely to increase beyond the 72 pip daily average (14) as ATR remains in an uptrend (and we have a busy news week, discussed below).
As for the potential of an upside move, a pullback first is more probable, but a rise above 0.9820 would negate that and open the door to continued USD strength. 0.9885 is the initial target for such a move followed by 0.9950.
In summary, the overall outlook is now bullish with a short-term pullback likely. Watch support/resistance levels mentioned above to confirm.
Busy week for high importance news in this pair:
-CAD GDP numbers out at 8:30 AM EST on Monday (high importance).
-CAD Rate Decision at 9:00 AM EST on Tuesday (high importance).
-USD ISM at 10:00 AM EST on Wednesday (high importance)
-USD NFP at 8:30 AM EST on Friday (high importance).
Be alert at these times, especially on the CAD rate decision and USD NFP. Expect moves beyond average on these days.
To profitable endeavors,
Cory Mitchell, CMT
