A Top for USD/CAD

A Top for USD/CAD

A Top for USD/CAD

Oil prices fell sharply today but the Bank of Canada’s decision to leave interest rates unchanged overshadowed the staggering losses in crude. While economists had not been looking for a change in policy, the sharp sell-off in USD/CAD indicates that investors felt otherwise. USD/CAD dropped more than 200 pips off its fresh 12 year high and now appears poised for a move below 1.44. Not only did the BoC leave rates unchanged but Governor Poloz sounded relatively optimistic. He’s not worried about a global recession, expects China to stay on transition path and believes that the weak dollar will aid growth. Poloz is also encouraged by the economy’s resilience and flexibility and instead of lamenting about the currency’s rapid decline, he said a further fast fall could boost inflation. More importantly, he noted that “most of the oil shock was built into their October forecast.” In other words, he did not express any specific concerns about the weak loonie and oil below $30 a barrel. These less dovish comments from Poloz should mark a top for USD/CAD.

Technically, there are signs of a top in USD/CAD. The first level of support is at 1.4400 and a break of this level would mark a break of not only yesterday’s low but also the upward trending channel. At that time, the next level to focus on will be 1.42. Resistance on the other hand is at today’s fresh 12 year high of 1.4690.

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