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Talking Points:
- USD/CAD Technical Strategy: Flat
- Support: 1.0970 (38.2% Fib ret.), 1.0892 (50% Fib ret.)
- Resistance: 1.1067 (23.6% Fib ret.), 1.1223 (Jan 31 high)
The Canadian Dollar continues to strengthen against its US counterpart, with prices slipping below support at 1.1067 marked by the 23.6% Fibonacci retracement to expose the 38.2% level at 1.0970. A break below this boundary targets the 50% Fib at 1.0892. Alternatively, a reversal back above 1.1067 aims for the January 31 high at 1.1223.
From a risk/reward perspective, a short position seems to make sense. Satisfying a 1:1 ratio would imply an entry price no lower than 1.1019, with a close above 1.1067 acting as a stop-loss and 1.10970 lining up as an initial objective. Tactically, we will opt to stand aside however. Prices have closely tracked the spread in 2-year yields, suggesting monetary policy bets are in focus. That bodes ill for the Loonie considering markets are pricing in no changes in policy over the coming 12 months (according to data from Credit Suisse) while the Fed is seen delivering an effective 31bps in tightening over the same period. With that in mind, we will look to the pullback as a future buying opportunity rather than a trade-able downturn.
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Daily Chart – Created Using FXCM Marketscope 2.0
— Written by Ilya Spivak, Currency Strategist for DailyFX.com