USDCAD
The USDCAD pair broke higher ahead of BOC later today. The crude oil price rejection from the $43 level helped too, as the CAD trades with a bearish tone across the board.
Also, the strong comeback of the USD marked the start of the equity market’s correction. In turn, this one pushed the USDCAD higher, too, in a typical risk-off market reaction.
Bank of Canada is expected to leave the monetary policy unchanged, but this is a central bank that uses to surprise markets. It would not be the first time when the Bank of Canada would take another decision, albeit the market participants do not know exactly what the new Governor’s leadership style is.
The oil price’s rejection from the $43 level comes at the back of a rising wedge and a bearish divergence with the RSI. While from a technical perspective, it was expected, from a fundamental one it puts pressure on Bank of Canada to react. Oil revenues are important for the Canadian GDP, and changes in the demand/supply balance influence the value of the Canadian dollar.
Speaking of the CAD, the direct relationship with the crude oil price is striking. The chart below shows the steady decline in the USDCAD pair – a relentless bearish trend that kept forming lower lows and lower highs.
The trend continued for as long as the crude oil price bounced from the negative territory to the $43 area. Now that oil corrects, the USDCAD broke higher, trades above the bearish channel’s upper edge, and threatens to form a head and shoulders pattern.
To trade the break, conservative traders may want to wait for a pullback into 1.3150 area – the projected neckline from the lower end of the left shoulder’s consolidation. Aggressive traders, on the other hand, will likely trade at market with lower exposure. In both cases, the 1.3075 invalidates the bullish scenario, while a proper target should be set either by using the head and shoulders’ measured move or by using a risk-reward ratio of 1:2.
