USD/CAD Outlook: A Drop Below 1.2500 Cannot Be Ruled Out

Summary:

The USD/CAD has resumed the downside move following the breakout from the triangle, and appears to be heading towards the 1.2500 mark.

The story of the day has been the weakening of the US Dollar, heading into the 3rd straight day. This weakness was accelerated by the drop in bond yields, in response to the disappointing inflation figures.

Also playing into the equation on the USD/CAD was the optimistic tone of the Bank of Canada, and recovering crude oil prices. Crude oil price on the WTI benchmark is up 1.88% on the day, which added strength to the commodity-dependent Loonie and opened the door for the USD/CAD to drop by 0.62% on the day.

Technical Levels to Watch

The breakdown of the triangle has taken out support targets at 1.26219 and 1.25862. Next in line is 1,25323. If this level fails to hold, we could see 1.24790 and 1.24489 coming under assault from bears. This move would get more support from higher crude oil prices.

The other side of the trade sees bulls coming back to the fray if there is a bounce on the 1.25323 support. This would allow for the acquisition of upside targets at 1.25862 and 1.26219 initially. A reversal of the short-term trend has to follow a surge beyond 1.27315, which would put 1.27831 and 1.28342 back on the radar.