USDCAD Bull Flagging Below 1.1670 – Big Breakout Still Possible This Year

The final two weeks of the trading year are infamous for low volume trade. Typically, this means that markets are rather lackluster, with traders more focused on the ongoing holidays than eeking out that last small profit of the year. However, the low volume conditions mean that it can take less capital to move the markets if there’s a major news announcement or technical breakout. For that reason, it’s still worthwhile to keep an eye on currency pairs that have significant data releases, as well as pairs that are near a major technical level.

USDCAD checks both those boxes. The pair rallied strongly to resistance at 1.1670, the 61.8% Fibonacci retracement of the post-GFC drop from 1.30 down to .9400, earlier this month. For the past week, rates have been coiling in a tight range just below this key barrier, creating a short-term bullish pennant pattern. Despite its name, this pattern is only seen as a bullish if we see a breakout above the top of the pennant, in this case at 1.1670.

That said, the secondary technical indicators are supporting the generally bullish outlook on USDCAD. The MACD is trending higher above its signal line and the “0” level, showing bullish momentum, and the RSI remains in bullish territory, though the recent consolidation has allowed the indicator to pull back from the overbought zone (>70). With these two secondary indicators still pointing higher, the current environment is conducive to a breakout in the exchange rate itself.

As for economic data, we have already seen a couple of key US and Canadian reports released today. Loonie traders got their first look at October GDP, which came out better-than-expected at 0.3% m/m vs. 0.1% eyed. Meanwhile, below the 49th parallel, the US saw a massive surprise this morning as the Final Q3 GDP reading came in at 5.0%, its highest quarterly reading since Q3 of 2002! The more timely durable goods data, which fell by 0.7% vs. a 3.0% gain expected, took a little of the shine off the stellar GDP reading, but the recent strength in the greenback shows that traders believe the US economy is pulling away from the global pack, even against its close trading partner to the north.

If USDCAD can break above 116.70 resistance on the back of this morning’s strong US data, a continuation toward the top of the bullish channel in the mid-1.1700s could easily come into play by New Year’s Day. Even if the pair fails to break that key resistance level though, the medium-term bias will remain higher within the well-established bullish channel.