Technical Analysis

USD/CAD: Key support levels in focus ahead of Bank of Canada decision, Poloz

USD/CAD trades lower on the day, loonie buoyed by better risk sentiment

ForexLive

The low today touched 1.3224 earlier in the session and ran into support from the September high @ 1.3226 before price rebounded a little to trade at 1.3240 levels now. The focus for the loonie today will be on the Bank of Canada meeting decision and Poloz’s press conference to follow thereafter.

The Canadian central bank is expected to keep rates steady so much of the focus will turn towards Poloz’s stance and whether or not he will surprise markets by being more hawkish again. As it stands, the improved risk sentiment and recovering oil prices are good reasons for USD/CAD to fall and when you couple that with a technical break seen on Monday the trade to the downside is very much writing itself.

Any hawkish shift by Poloz & co. is very much an added bonus for the loonie at this point. The only fear is that he turns more dovish and highlights worries surrounding the global economy and the Fed that could potentially cause the Bank of Canada to pause indefinitely on hiking rates down the road too.

As for levels to look out for, as mentioned above price is running into support from the 1.3226 level for the time being. But further support is then seen from the 100-day MA (red line) @ 1.3179. That will be a key level to watch out for in a downside extension later on. A break below that level will put an end to the bullish bias in the pair.

Thereafter, further support is then seen @ 1.3160 and then @ 1.3132 before the 200-day MA (blue line) @ 1.3081 comes into play.

As for a potential reversal back to the upside, price needs to climb back above the July high @ 1.3290 for a chance of a further extension in my view. Ultimately, resistance @ 1.3384 will be key as that also coincides with the highs seen in June and it would also mean a move towards testing the broken trendline support from October. If price can get back above the latter, only then I would be convinced of a recovery back towards the highs at the end of December/start of January.

Barring any major sentiment change by the Bank of Canada later, I’d still be inclined to short the pair if it heads towards the resistance levels above.

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