After rallying for what seemed like an eternity between September 2012 and January of this year, USDCAD has fallen off sharply and isn’t showing any signs of stopping. The pair has now given up a massive 1,900 pips since topping out in January.
At the end of last month, it appeared as though the pair had put in a temporary bottom via a (potential) inverse head and shoulders that had developed on the 4-hour chart. However, that idea has been extinguished by the last 24 hours of price action.
The key 1.2856 handle that broke down during yesterday’s session was a “must hold” area for the bulls. With the pair now comfortably below it and the BoC rate decision less than 24 hours away, things are about to get interesting.
While I won’t put on a trade in front of the event, any retest following the policy statement could make for a favorable opportunity to get short. There isn’t much in the way of support until the May and June 2015 highs at 1.2560, offering traders a potential 300 pips before the downside target comes into play.
In summary, a stronger Canadian dollar has presented us with two options as we enter the second half of the trading week. I commented on EURCAD yesterday, which has now broken below channel support. The next level of interest is 460 pips away, making it just as attractive as USDCAD, if not more so.
The pair you decide to pursue boils down to whether you’re more bearish the Euro or the US dollar.