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USD/CAD Reversal – Are We Worried?
On Friday we reinitiated our USD/CAD short position. Our entry level was well off the day’s lows but the intraday recovery in USD/CAD took the currency pair above 1.32. Technically, the two long wicks in USD/CAD are extremely bullish for the currency pair and because of that, some members may be worried about the move. The rally in USD/CAD was driven by 3 main factors – lackluster CPI growth, U.S. dollar strength and the 4.73% decline in crude prices. On both a fundamental and technical basis, we could see further strength in USD/CAD but gains should be limited to the August high of 1.3352. If this move occurs, it would trigger our second entry and provide us with a more favorable average price. However Bank of Canada Governor Poloz is speaking on Monday and if he sounds optimistic (because the Fed did not raise interest rates), it could renew the decline in USD/CAD and we may not even need to worry about a retest of the highs. In the past few days, the currency pair has been extremely volatile and while the U.S. dollar rebounded sharply on Friday, we believe the gains will be limited in the coming week due to noncommittal Fed speak.
Technically, there is quite a bit of resistance right above 1.33 but 1.3352 is the main level to watch. We believe that it will hold but if it doesn’t the door would open for a move to 1.35. On the downside, the sell-off on Friday stopped short of 1.30, the main key support level.