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USD/CAD coiling ahead of jobs reports from US, Canada

Unlike crude oil, the USD/CAD currency pair has made a somewhat more decisive move of late. It held above 1.30 handle successfully after several tests and finally broke higher to head towards and above 1.3210, 1.3350 and 1.3385 resistance levels. But it still remains inside its wider 1.3000-1.3590 range and in the last couple of trading days, it has formed some indecisive-looking price patterns on its daily chart, suggesting the rally has paused for breath. An inverted hammer was formed on Friday but there was no follow-through in the selling pressure on Monday. Instead, it created and inside bar pattern. At the time of this writing, the USD/CAD was little changed and it had not even tested Monday’s range extremes, thus continuing to coil.

The good news is that one can now expect the ranges to expand after this contractionary phase – not least because of the key monthly jobs reports from both nations on Friday. However, the bad news is we can’t be highly confident about the direction of the eventual breakout. What’s more, it is difficult to say at this stage if the breakout will be maintained or whether it would be a false move. Indeed, it is likely that a large number of stop orders have now been formed on either side of Monday’s range. So, what may happen is for price to break in one direction, trigger those stops and then head the other way. Perhaps, from a trading perspective it may be better to wait for a breakout and see if it can hold, before pulling the trigger. If it doesn’t hold, then that in itself can be a tradeable idea because from false breaks usually come fast moves in the opposite direction. This sort of price action is common ahead of key fundamental news.

So, what we are looking for on the USD/CAD is a decisive break outside of the current ranges. A decisive break below 1.3375 support could potentially lead to a drop towards 1.3210, which was the last resistance pre breakout. There’s an additional short-term support level to deal with at 1.3350. Alternatively, a decisive break above 1.3430 could lead to a move towards our bullish objectives (or resistance levels) at 1.3500 and then 1.3590 – the top of the wider range. We are not expecting the moon at this stage but will re-assess the situation when there is more clarity. 

Source: eSignal and FOREX.com.

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