Forex Technical Update

Previous: USD/CAD Trading in Labor Day Range; Looking Ahead to the BoC Meeting (9/3)

The Bank of Canada held its overnight rate at 1.00%. The market did not expect a change in rates but a general consensus is that the BoC will be the central bank in the G7 nations to raise rates. The BoC statement released was indeed hawkish.  Even though it noted global headwinds, it explained that domestic demand has kept the Canadian economy afloat. In fact It stated:

"To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate"

This basically means that the current conditions has the central bank considering raising the overnight rate from the low level of 1.0%. This should be CAD-positive right? If this was a surprise maybe, but as we look at the USD/CAD reaction, we see that the CAD is actually softening.

USD/CAD 1H Chart 9/5/2012 9:28 AM EDT


Up From Range Support: The 1H chart shows the USD/CAD holding above the 0.9842 support during the 9/4 session. Then the pair rallied and pushed into new highs for the week ahead of the BoC meeting. I basically regressed back to mean price action around the 200-hour SMA, and middle of a larger range which can be seen more clearly in the 4H chart.

After sitting here for most of the 9/5 European session and right after the BoC released its statement, the USD/CAD is keeping the integrity of its near-term bullish mode rallying in a rising channel. After this initial reaction, we see a pivot around 0.9865. A break below this without being able to clear above 0.99 would be end the integrity of the near-term channel, and put the focus on breaking the  0.9840-0.9850 support. This scenario basically opens up the 0.98 2012 low.

Looking at 4H Range: The USD/CAD has been non-directional for most of August after a June-July bear run from 1.0444 down to 0.9842. The 4H chart shows the range between 0.9950 and 0.9842 that has been holding USD/CAD since 8/10.

Today's BoC statement did not have any significance because it did not push the USD/CAD to focus on 0.9840 support area. Instead we are near-term bullish as the market gets into the middle of the range, where the price of USD/CAD can be considered "neutral"

USD/CAD 4H Chart 9/5/2012 9:35AM EDT


Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.