USDCAD Pressing Against 1.0985 Barrier Ahead of US Data

Last week, we featured a developing USDCAD Double Top pattern at 1.0985, suggesting that the pair may fall further after breaking the pattern’s point of reference at 1.0900 (see below for more). Though the pair did briefly tick down to 1.0860, the bears could not overcome the broad-based US dollar rally, and rates have since recovered back to the key 1.0985 barrier. Now, traders are asking, “Could we form a triple top, or is the pair more likely to break this ceiling?”

From a fundamental perspective, the greenback rally has strong support. Recent economic data has been solid, especially in contrast to the USD’s major rivals, and yesterday’s Fed minutes suggested that the central bank is growing increasingly concerned that it may be falling behind the curve. That said, Canada has also been one of the strongest-performing major economies of late, highlighted by Friday’s stellar jobs report revision, which showed nearly 42k new jobs were created The Great White North. With both North American nations sitting on solid fundamental footing, technical analysis may break the stalemate.

Looking to the 4hr chart, the pair’s 5-week uptrend from the lower-1.0600s is still intact, though the unit continues to struggle with the 1.0985 cap. The secondary indicators are also generally bullish, with the RSI holding up in bullish territory (>40) and the MACD trending higher above both its signal line and the “0” level. Despite this generally bullish medium-term view, the short-term price action suggests rates may be due for a pullback. Specifically, rates just carved out a 4hr Dark Cloud Cover* candle; this bearish candlestick pattern indicates a shift from buying to selling pressure and is often seen at near-term tops in the market.

There are still a couple of potentially market-moving fundamental releases from both the US and Canada scheduled for later this week (see below), but overall technical picture will remain constructive as long as USDCAD holds above bullish trend line support in the lower-1.0900s. A breakout above 1.0985 later this week or early next week would open the door for a run up to daily Fib resistance at 1.1025 next, whereas a break of bullish trend line support could expose last week’s lows in the mid-1.0800s.

Key Economic Data that May Impact USDCAD This Week (all times GMT):

Today: US Markit Manufacturing PMI (13:45), US Philly Fed Manufacturing Index and Existing Home Sales (14:00)

Friday: CA CPI and Retail Sales (12:30), Fed Chair Yellen Speech at Jackson Hole (14:00)