USD/CAD: Double top beneath key swing highsUSD/CAD has risen just over 4% since its YTD low set in July. And it did so in a relatively straight line. Yet a double top has now formed on the daily chart beneath the April and May highs, with the second ‘top’ coming in the form of a bearish engulfing / outside day. This likely points to at least a minor top over the near-term. Any low-volatility moves towards 1.3600 could provide bears an improved reward to risk ratio, with 1.3500 making a viable initial target. Should US data such as GDP, ADP employment and Nonfarm payroll disappoint, we could be looking at much lower.
Loonieshort
Challenges Ahead for USD/CAD Bulls Last night, the Bank of Canada decided to raise its interest rate by 25 basis points, bringing it to 4.75%. This move came after a pause in the tightening campaign during the two previous meetings. As a result, borrowing costs reached a level not seen in 22 years. Because most of the market, approximately 60%, expected interest rates to remain unchanged, the Canadian dollar (CAD) strengthened against the US dollar (USD) following the news.
The USD experienced a decrease of 0.23% against the CAD. The initial reaction in the USD/CAD exchange rate showed an 80-pip drop, bottoming out at 1.3320. However, the possibility of an additional rate increase by the Federal Reserve in July likely limited the losses. The upcoming release of US inflation data next week, coinciding with the Federal Open Market Committee (FOMC) meeting, may provide limited insights into the validity of this possibility.
If there are any further upward movements, reaching the area around 1.3400 could present a challenge for those expecting gains. This is because the 50-day, 100-day, and 200-day moving averages (MAs) on the 30-minute chart are all moving in their own lanes, indicating that the short-term price won't be fighting the long-term downtrend just yet. The April 14 low of 1.3300 and the aforementioned 1.3320 could be key if the pairs move lower.
USDCAD bullish breakout scenario above 1.26Market's been trading in this descending channel since January and right now in a bull leg putting pressure against the resistance trend line.
If we are to see more USD strength (the dollar has been on a tear lately), then this could be a nice breakout setup.
Watching that 1.26 level like a hawk...
USDCAD Trending ShortUSDCAD has been trading within this 4 hour trading channel for some time now. After a strong push away from its resistance last week we can expect to see more downside on the pair with a target of approximately 1.29. The pair has broken out of its mini trend within this channel and retested its trend line as confirmation. A close above 1.315 will mean the short is invalid however support fundamentals are in play and the move appears to be solid. As always trade safely and move stop loss to entry once the trade is in your favor more than 20 pips. Best of luck
Loonie/USDCAD - First Short, Later LongThe USDCAD is in my opinion in a WXYXZ formation. There, the loonie is already in the X2 and should form a abcde correction. This is already in the final stages and should fall within the e at least 1.25 or lower, which is a very good move for a currency pair. At 1.20, the e and thus the X2 could find its end. Once this has taken place, a strong devaluation of the loonie should not surprise and advance to within the range of 1.60 in the next few years.
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Stefan Bode - Hanover, Lower Saxony
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