USDCAD bank of canada
The USDCAD pair came back to the “equilibrium” level – 1.30. The 1.30 level acted as a pivotal level on the pair for such a long time that it became closely watched by traders every time the price reaches it. In fact, not even the coronavirus pandemic or the price of oil settling below zero was not enough for the USDCAD to make a significant move away from it.
But now things look different. Ahead of the Bank of Canada interest rate decision, the USDCAD pair offers opportunities to trade for both bulls and bears.
The Business Outlook Survey ran by the Bank of Canada this autumn reveals some interesting facts. The business sentiment remains weak, six months into the pandemic. Also, while credit conditions have improved, investment intentions remain weak too. Investors cite uncertainty as they are afraid of how long the pandemic will last.
Moreover, demand remains weak. While inflation expectations did shift somewhat to the upside, they remain well below the Bank of Canada’s target.
Two levels dominated the price action in the last year and a half – the 1.30 and 1.34 level. As such, both bulls and bears have the possibility to trade the range using a 1:2 risk-reward ratio.
The way to do so is to trade the extremes of the range. For instance, bulls may want to buy the 1.30 with a stop-loss order at 1.28 and a take profit at 1.34. Once there, bears may want to sell the upper edge of the channel (1.34) against 1.36 and target a move back to the 1.30.
If we look at the spike higher seen during the time the oil price settled below zero, we may see a head and shoulders pattern. If that is the case, the consolidation on the right shoulders is just at the beginning, favoring the range trading scenario mentioned here.
