USD/CAD Slows Down As Resistance Caps Rally

Technical Sentiment: Bullish

Key Takeaways

• Core PCE Price Index (bearish expectations), Personal Spending (bullish) and Pending Home Sales (bearish) due at the start of the U.S. trading session;
• Canada’s GDP due to be released on Tuesday, expected figure at 0.2% vs. 0.3% in August;
• USD/CAD remained neutral during the first two trading sessions of the week.

While USD/CAD can only be described as extremely bullish – with Higher Lows and Higher Highs forming on the Daily chart – traders might opt for a bearish correction during the first half of this week, at a minimum until “buy the dips” strategy becomes too attractive to pass up.

Technical analysis

Following a strong bounce off a huge support cluster between 1.088-1.093, USD/CAD went on to exceed 15^th September High of 1.1097, adding further weight to those scenarios that suggest we may soon see the pairs at fresh yearly highs above 1.1277.

USD/CAD is currently trading around 1.1150 ahead of the 9/29 U.S. session, just below today’s Open after bouncing off 1.1177 during intraday trading. Price action seems to respect the resistance of a 3-month old bullish channel, raising the probability of a temporary correction within the uptrend. Stochastic has already entered overbought territory on 4H and Daily, indicating a top could form at current levels. An initial decline below 1.1130 could trigger a limited sell-off down to 1.1000/30, where USD/CAD will likely find plenty of offers around the main support cluster (pivot zone, 200 Simple Moving Average and 50% Fibonacci retracement on the most recent upswing).

A rally above 1.1175, confirmed by a Daily Close, will invalidate views of a correction within the bullish channel. In this situation we are likely to see the rally accelerate directly to 1.1277, where traders are going to face the next long term decision.

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Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets