Forex Investment and Currency Trading

Short-Term Outlook: Breaking Above 1.0415

USD/CAD briefly broke the upside of 1.0300-1.0415 trading range, but failed to test 1.0495. With the hourly studies losing some upward momentum near overbought levels, resistance at 1.0452 and 1.0495 is expected to attract short-term selling interest for a test of support at 1.0375. An hourly close below this level would then target 1.0304).

Medium-Term Outlook: Close Below Strong Support at 1.0343 Would Target 1.0207

A daily close below the strong support level at 1.0343 would amplify the corrective tendencies that are present in USD/CAD. Resistance at 1.0495 and 1.0546 is expected to contain rallies for the time being – with a clean break below 1.0343 targeting 1.0204.

The fiscal stimulus package, which had been providing a boost to incomes via tax rebates, began losing steam last month. In fact as the support from the rebates wane it will put downward pressure on the monthly increases. However, a lion’s share of this downward pressure is expected to be offset by indications in the August employment report of rising labour income which we estimate was up 0.3% m/m. On net, this will leave personal income down a modest -0.1% in the month. With respect to personal spending, retail sales disappointed by falling 0.3% m/m in August.

Close Below 1.0632 Confirms Valuation Concerns, Triggers Retracement

The September 19 close below 1.0632 produced a bearish trend reversal in USD/CAD that highlights a strong support level at 1.0343, followed by 1.0211. The resulting bearish trend reversal was magnified by the bearish divergence that had developed on the daily studies. Given this development, resistance at 1.0546 is expected to attract selling pressure. The 1.0343 level represents strong support as it served as a prior triple top that, once broken in early August, generated an uptrend that saw
USD/CAD reach a high of 1.0821. Hence, a clean break below 1.0343 would damage the upward momentum that has been in place since late July and highlight secondary support levels at 1.0211 and 0.9977.  The pullbacks to these levels is viewed as a buying opportunity for another move higher. 1.0825 is the technical price target (the September 11 high of 1.0821 fell just short of our objective), with 1.0275-1.0875 serving as expected 3-month trading range. The current uptrend will remain valid while prices trade above 0.9976, with a close above 1.0613 required for new upward price momentum.