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USD/CAD Faces Heavy Resistance
Over the past week we have seen strong gains in USD/CAD and this move has certainly been frustrating for our Big Trade. The currency pair climbed to a fresh 11 year high on weaker retail sales, lower oil prices and a stronger U.S. dollar. However if you have noticed USD/CAD traded lower not higher after Yellen’s speech on Thursday. Between 5pm NY Time and 9pm NY Time, USD/JPY rose from 119.60 to 120.53 and during this same period, USD/CAD dropped from 1.3345 to 1.3300. Contrary to popular belief Fed tightening may not be positive for USD/CAD. In the lead up to the start of tapering in December 2013, USD/JPY rose strongly but USD/CAD traded in a very tight range and when USD/JPY fell sharply in the beginning of 2014, USD/CAD rallied. This divergent price action is driven by the perception that what’s positive for the U.S. is good for Canada as well. In the coming week, Canada’s July GDP report is scheduled for release but in the front of the week, oil prices is key and in the back of the week the focus will be on U.S. non-farm payrolls. If oil stabilizes, 1.34 could mark the top in USD/CAD. If it falls, then USD/CAD could rise to fresh 11 year highs.
Technically the 11-year high of 1.3416 is an important resistance level for USD/CAD but the main resistance is at 1.3445, the 61.8% Fibonacci retracement of the 2002 to 2007 decline and above that is 1.35, the psychologically significant level. In other words there’s quite a bit of barriers above current levels. Support on the other hand is at 1.32 followed by 1.30.