Canadian Dollar Summary
The Canadian Dollar rallied after the BoC rate cut on Wednesday, but that move was short-lived as support showed in USD/CAD at the 1.3900 level and the back-half of the week saw buyers regain control of the pair. This sets up a short-term inverse head and shoulders pattern in USD/CAD and if we do see the larger theme of USD-strength continue the pair could soon be trading at fresh six-month highs.
USD/CAD was in breakdown mode through Wednesday morning and the Bank of Canada rate decision helped to provide some fuel for sellers. Despite the bank cutting rates yet again, the prospect of a BoC on hold in the near future prodded a degree of CAD-strength, and when meshed up with a USD driven by the expectation for more cuts in December and into next year, there was a clear shift of weakness from the fundamental drive in USD/CAD.
That move continued a sell-off that sparked from a rising wedge formation. There was a minimum of resistance at the 1.4000 handle when buyers were driving the move but once above the psychological level, momentum began to slow at highs even with bulls remaining aggressive on pullbacks. The initial drop below 1.4000 was paused at the 1.3981 level, but sellers went for the break at the Bank of Canada announcement until running into the 1.3905 level that I had highlighted in the webinar on Tuesday.
USD/CAD Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
USD/CAD Shorter-Term
I looked at an updated view of the pair on Thursday, and while there remained some bearish items, such as the hold of 1.4000 resistance or the broader rising wedge that price action still remained below, the v-shaped reversal from support was something that demanded respect. And as a continuation of that, buyers have been able to push back above the vaulted psychological level at 1.4000 to find resistance at the familiar 1.4034 level.
This brings on the image of an inverse head and shoulders pattern and given the storyline behind the move, the plot fits, as sellers had an open door to drive a break, were thwarted at a key spot of support, and buyers have since regained control with reference to the same levels that were in-play ahead of the initial breakdown move. Next resistance overhead is the 1.4061 level, the same looked at in the Tuesday webinar and the Thursday article, and beyond that is 1.4080 which is the current six-month high in the pair.
USD/CAD Four-Hour Chart
Chart prepared by James Stanley; data derived from Tradingview
--- written by James Stanley, Senior Strategist
