USD/CAD Forecast: Stuck in a symmetrical triangle ahead of BOC rate decision

USD/CAD is set to end the week with 0.34 percent gains at 1.3369, having found bids below 1.33 on Wednesday. 

Notably, the currency pair has defended the psychological support of 1.33 on weekly closing basis for the third straight week. 

Sellers failed to keep the pair below 1.33 despite oil’s rally to fresh highs since November. (Brent clocked a high of $72.53). Growing expectations that the Bank of Canada will adopt a neutral shift next week may have hurt the Canadian dollar. 

Even so, it is too early to adopt a bullish stance, as the pair is trapped in a narrowing price - known as symmetrical triangle pattern in technical parlance - since early March. 

The range breakout may happen next week depending on what the BOC says and the action in the oil markets. 

Focus on BOC rate decision due at 14:00 GMT on April 24

Canada’s central bank is expected to keep the interest rates unchanged at 1.75 percent and shift to neutral bias from tightening bias, as recent macro data releases have shown the economy slowed down in the first quarter. 

Notably, the central bank’s quarterly gauge of business intentions and optimism released this week showed the overall business sentiment turned negative in the first three of this year, as opposed to the positive reading seen in the final quarter of 2018, according to Wall Street Journal. 

The details of the report revealed growing concerns regarding external demand and housing sector slowdown. 

Add to that the recent dovish turn by the major central banks and the BOC has little reason to hold on to its tightening bias. 

Further, the BOC is also expected to revise lower its 2019 GDP forecast, currently at 1.7 percent, and sound cautious on inflation. 

The repeated defense of 1.33 over the last three weeks despite the oil rally indicates the shift to neutral bias may have been priced in by investors. In fact, rates markets have begun pricing in a year-end rate cut. 

The contracting triangle seen in USD/CAD’s daily chart could be breached to the higher side if the BOC surprises with an outright dovish bias. It is worth noting that the long-term technical charts are biased bullish. So, an upside break of the symmetrical triangle would not be a surprise. 

Daily chart

The above chart shows:

• USD/CAD has created a symmetrical triangle. 
• The 50-day MA, currently biased bullish at 1.3117, has served as strong support over the last four weeks.  
• The pair closed with 0.24 percent gain, validating the strong dip demand below 1.33, signaled by yesterday’s long-tailed candle.
• The 14-day relative strength index (RSI) seems to have established strong support at 47.00. 

The probability of USD/CAD breaking the triangle on the higher side is high. A range breakout could be followed by a rally towards January highs above 1.3660. 

A bearish reversal would be confirmed if the RSI breaks below the support at 47.00.