USD/CAD – High Probability Move to 1.20

From a fundamental and technical perspective, we have strong reasons to believe that USD/CAD will fall to 1.20. The Canadian dollar was the day’s best performer, rising to its strongest level against the U.S. dollar in over 3 months. What is interesting about the move was that no economic data was released from Canada and oil prices declined. However, last week’s positive news flow continued to boost the currency. The price of crude increased 20% this month, leading the Bank of Canada to drop its bias to lower rates. In fact, on Friday, Bank of Canada Governor Poloz said he is also very optimistic about the U.S. economy and believes that the adverse effect of lower oil prices will be gone by the second half of the year. The pickup in consumer spending and trade activity should lead to a stronger GDP report and it is one of the main reasons why we are looking for USD/CAD to hit 1.20.

Technically, USD/CAD is trading comfortably below its 100-day SMA and with the 23.6% Fibonacci retracement of the 2007 to 2009 rally broken at 1.2120, there is no major support in the currency pair until 1.20. In fact, we have strong reasons to believe that if 1.20 breaks, next stop for USD/CAD will be 1.18.