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<Back to Latest Research
TECHNICAL UPDATE (II): USD/CAD – Is it time for a pullback?

Updated Mar 1, 2013 6:25:00 PM By Chris Tevere, CMT

A week ago we highlighted that USD/CAD had clearly moved into overbought territory, according to daily RSI, however it didn’t show signs that a top could be in place. Furthermore, we cited two potential market moving events: Speech from BoC’s Carney on Monday and 4Q/Dec. GDP figures on Friday. Governor Carney’s dialogue on Monday proved cautious, as he stated that Canadian data was “breaking to the downside” and also reiterated that higher interest rates were “less imminent”, however this was nothing new as it was previously noted during the Bank of Canada’s interest rate statement on January 23rd. Additionally, the Italian election results on Monday had the market’s complete attention. On the other hand, today’s December and 4Q GDP came in-line with expectations – December: -0.2% MoM & 4Q: +0.6% annualized, yet this caught the market by surprise because they were poised for an underwhelming number, due to the rhetoric from the BoC earlier in the week, and this effectively capped further USD/CAD upside.

From a technical perspective USD/CAD failed around 1.0340/45, which was just ahead of the previous highs from June 2012 at 1.0360. More importantly, Elliot Wave analysis showed that this was potentially the completion of a 5-wave move higher from the February low and notably this was coincided by an RSI bearish divergence – adding further credibility to a top in place. Furthermore, we also spotted an hourly RSI bearish divergence as well (see zoomed in chart). Interestingly, around midday we saw USD/CAD hold a key intraday pivot at 1.0300 & then broke below 1.0275, confirming a 5-wave setback from the 1.0340 highs – See intraday chart posted on Twitter. Consequently, according to EW analysis this suggests a more meaningful correction (labeled a-b-c in the hourly chart below), or potential outright reversal could be underway. What’s more, today’s daily candlestick pattern, whether identified as a shooting star or dark cloud cover, is known for its bearish reversal characteristics. Thus, it may be prudent to be aware of a potential correction towards 1.0185 (38.2% retracement) over the coming days. Should this failed to prove supportive, all eyes will be on 1.0100 (January high), and if it gives way it would suggest a much deeper retrenchment could ensue (2013 lows?).

Noteworthy Canadian events next week:

  • 3/6  – Bank of Canada interest rate announcement: exp. unchanged at 1.00%
  • 3/7 – Jan. Building Permits: exp. +5.0% MoM
  • 3/8 – Feb. Housing Starts: consensus +175K
  • 3/8 – Feb. Employment report: exp. u-rate 7.1%, jobs +8K

Chart Source: Forex Charts by eSignal

TECHNICAL UPDATE (I): USD/CAD – Reached 1.0215/25 convergence zone
Updated Feb 22, 2012 5:20:00 PM

Towards to beginning of February we highlighted the potential for USD/CAD to make a run above 1.02 as the technical and fundamental stars began to align (see original update below). Sure enough at the beginning of the week USD/CAD broke above the January high (1.0100) and this set the stage for a likely test the noted 1.0215/25 convergence zone – Channel resistance, two Fibonacci extensions, the 200-week sma as well as the top of the weekly Ichimoku Cloud.

Today’s economic data out of Canada confirmed the weakness in the economy that the BoC cited at their last meeting on January 23rd, as January CPI fell to +0.5% YoY from +0.8% YoY in December and December Retail Sales fell by more than anticipated, -2.1% vs. consensus -0.3%. Consequently, this propelled the pair above 1.02 the figure, achieving the 1.0215/25 area shortly thereafter. While it did continue above this level intraday, it was unable to finish above it on a daily closing basis. Furthermore, daily RSI is clearly in overbought territory and as such is a potential cause for concern, however it as yet to show signs of a top.

While USD/CAD could continue to move higher over the coming days, our bias has moved to more of a neutral stance. That being said, should the Loonie continue to weaken relative to the U.S. dollar, the next potential levels of resistance to watch are 1.0270/75 (61.8 & 78.6% retracements), 1.0360/65 (June ’12 high) and 1.0440/45 (78.6% retracement & 2012 high). Besides the price actions itself, two potential Canadian market moving events you may want to keep an eye on next week are a speech from the Bank of Canada governor Carney (Monday) and 4Q/December GDP figures (Friday).

Chart Source: Forex Charts by eSignal

TECHNICAL UPDATE: USD/CAD – Poised for a test above 1.02?
Updated Feb 8, 2012 6:00:00 PM

USD/CAD has been a major head-scratcher of late as the Loonie has not strengthened alongside the moves higher in crude oil (WTI)1 or the S&P5001 over the past few weeks – These are relationships which typically have positive correlations. So what was potentially causing this dichotomy? We believe this is the result of the Bank of Canada’s change of guidance in their interest rate statement on January 23rd, when they noted that higher interest rates were “less imminent”, pointing to weakness in the economy (lowering their 2013 GDP outlook to 2.0% from 2.3%), slowing inflation, stabilizing debt levels and persistent currency strength. This was further reinforced on the Jan. 25th when the BoC released their December Consumer Price Index (CPI) figures, which showed a decline to -0.6% MoM and +0.8% YoY versus consensus expectations of -0.2% MoM & +1.2% YoY. Together, this combination saw market participants push back their expectations of a rate hike from mid-late 2013 to 2014 (at the earliest). Consequently, this saw USD/CAD take out its respective 200-day sma near 0.9985, parity as well as the previous highs from November around 1.0055, before toping out around 1.0100.

Since then, the pair has spent much of the past two weeks pulling back, but then yesterday found support into the daily 144 & 169 EMA’s as well as the top of the daily Ichimoku Cloud around 0.9940. Today’s rather disappointing Canadian January Jobs report, -21.9K vs. expected +5K and +39.8K prior, provided USD/CAD with the ammunition to break back above parity and when we take this, as well as previous technical indications into consideration – RSI’s bullish divergence & then finding support into the key 40 level, followed by a break above the noted 65 level, it suggests a new uptrend could be in the works. Should USD/CAD break above the previous highs around 1.0100 over the ensuing sessions, it could see a test of the key 1.0215/45 level next.

1.0215/45 sees the convergence of:

  • Channel resistance
  • Two different Fibonacci Extensions
  • 200-week sma
  • Top of the weekly Ichimoku Cloud

Furthermore, just above this convergence zone USD/CAD sees the 61.8% retracement, of the 2011-12 decline, around 1.0265/70 and with the economic calendar in Canada rather light next week – only Dec. Manufacturing Sales and Jan. Existing Home Sales, it could set the stage for a technical driven move higher over the next few days. That said, should USD/CAD break back below yesterday’s low around 0.9930, it would negate this bullish bias as it could revisit the previous 2013 lows around 0.9815 thereafter.*

1 Reference is for informational purposes only and is not offered to US clients
*Forex trading involves a significant risk of loss and is not suitable for all investors

Chart Source: Forex Charts by eSignal

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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