USDCAD, Weekly
In the previous report I suggested that USDCAD should sell a bit before it can move higher. The pair found support at Fibonacci cluster and has since then moved strongly higher. USD benefited from the fact that the time of potential rate hike is getting nearer and CAD suffered from the drop in Crude Oil prices. This move has taken USDCAD to a resistance formed by the mid-March high at 1.2835. The pair is now trading at weekly upper Bollinger Bands and has reacted slightly lower today.
As per 50 week SMA this market is still in an uptrend but Stochastics and RSI (7) are pointing to this market being close to overbought territory. This combined with the fact that price is trading right under a major resistance level suggests that we should now see a pause and a correction lower. The nearest important weekly support level is at 1.2563, a weekly pivot high from the beginning of June. The long term bullishness should still prevail after this corrective mover lower.
USDCAD, Daily
Stochastics oscillator is rolling below the overbought threshold after market hit a resistance at 1.2780. With market being close to a major resistance level this signal bears more validity. I expect therefore CADUSD to retrace and move to 1.2633 support, while there is also support at 1.2563 coinciding roughly with 38.2% Fibonacci retracement. The next significant level of support can be found at 1.2400 as it coincides with 61.8% Fibonacci level at 1.2380.
With crude oil probably being weak due to extra supply following a likely deal over Iran nuclear program it makes sense to expect further weakness in CAD. On the other side of the equation we have strong expectation that the Fed will raise rates later on this year, which is getting closer by the day. Therefore my expectation is that after a corrective move lower USDCAD will push into new highs.
USDCAD, 240 min
After hitting the resistance price has been drifting lower for the last two days. This has led the price action outside the 2 stdv regression channel which is bearish in this context. There has been some support from the lower Bollinger Bands but still this market has been making lower highs.
Conclusion
Long term trend is still higher according to weekly 50 period SMA. However, this market is now overbought and close to a resistance level. This shows up in the daily time frame as loss of momentum. All this suggests that the market should correct lower and the nearest daily support area is at 1.2633 with the next near 1.2563 level. With crude oil probably being weak due to extra supply following a likely deal over Iran nuclear program it makes sense to expect further weakness in CAD. On the other side of the equation we have strong expectation that the Fed will raise rates later on this year, which is getting closer by the day. Therefore my expectation is that after a corrective move lower USDCAD will push into new highs. Should this take place my target is 1.3680.
Janne Muta
Chief Market Analyst
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