Quick Fundamental Take:
The Canadian Dollar has strengthened by ~300+ pips since the October 7 Unemployment data that surprised with impressive 67.2k jobs added against expectations of 7.5k. The Canadian Dollar's advance halted during the Bank of Canada's press conference where Governor Poloz mentioned the discussion of further stimulus, which naturally revealed there is almost no inclination to raise rates shortly.
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Another component that could be helping the Canadian Dollar is the recent 15-month highs in Crude Oil . Governor Poloz noted that the Oil-Sector investment cuts might be bottoming out, and a rising Oil price could help to ensure CapEx is on the rise in the precious energy sector. Lastly, Governor Poloz voiced disappointment in the health of the exports despite the weaker Canadian Dollar, but Global demand (ex-China) continues to be uncertain.
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240 Minute USD/CAD Trading View Chart:
Chart Created by Tyler Yell, CMT
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The chart above shows the price action and Fibonacci levels that appear to be framing possible breakouts. The main focus I would encourage is to watch a breakdown through key levels of support that could validate further CAD strength. We've recently broken below the 100-DMA that sits at 1.3015 but now stare at the 38..2-61.8% retracement of the May-October Range. This range encompasses 1.2988-1.2786.
A breakdown below this zone would align with the apparent correct chart pattern that looks like a consolidation pattern known as a type of Bear Flag. Should this pattern be in play and validated with further Canadian Dollar strength, we would eventually anticipate a retest and break of the May low of 1.2469.
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Given the weak trend higher without a break below significant support at 1.3015, I would continue to encourage watching the upside if USD strength resumes. The chart above shows the kiss of the 38.2% retracement of the January-May range as the current top. Should we eventually turn higher from this ~ (2.25) % drop in USD/CAD and take out 1.3312, we will look for an extension toward the Fibonacci Retracement level higher such as 1.3572. This level would be the 50% retracement of the January-May range or possibly the 1.38272 61.8% retracement if CAD weakness accelerated.
Key Levels as of Wednesday, October 19, 2016
T.Y. original source
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