USD/CAD in a Symmetrical Triangle Continuation Pattern

The strength seen in the dollar during the last couple of sessions, which held it above the key support level of 1.2400, has suggested some signs of a recovery and thus the 1.2565 level and the 1.2660 barrier, will be significant ones for the euro bulls this week.

Market participants will be focused on significant data coming from the Canada, including the GDP figures for the fourth quarter as well as the BoC policy meeting due tomorrow. The market expects the Bank to maintain its policy rate unchanged at 0.75%. In their last meeting, the BoC lowered its benchmark rate to a historical low of 0.75% in response to falling oil prices. This rate cut, was a measure to avoid the risk of deflation since inflation is declining at fastest pace and at the moment is far below the Central Bank’s target at 2%. Inflation fell to 1.0% in January from 1.5% in the previous month and 2.0% in December.

Technically speaking, what we now have on the 4-hour chart is a symmetrical triangle formation. The pair is currently finding strong support at the 1.2400 level, which coincides with the lower boundary of the triangle formation, as well as the 200-period SMA.

On the upside, the price is finding strong resistance at the 1.2565 barrier, which coincides with the first descending trend line (blue dotted line). The pair is trading in this formation since end of January 2015, testing the upper boundary of the formation two times and three the lower boundary, thus a breakout cannot be too far away, but for now, I would expect to see more consolidation or an upward correction towards the 1.2660 level.

The level of 1.2200 is the key to understanding whether we are watching a trend reversal for the USD/CAD pair. However, at this stage there is no evidence indicating a trend reversal and therefore I will remain dollar-positive.

On the monthly chart, the dollar has seen five consecutive positive months against the dollar, bringing us to a key historical level at 1.2800, which could determine the long-term outlook for the pair. The weekly chart shows the uptrend the pair has been trading within since mid-2012, after rebounding from another historical level of 0.9600. In the long run, I still expect a strengthening dollar to continue to weigh on the loonie as well as on the rest of the commodity currencies.