23/01/2016
USD/CAD has spent much of this past week in a sharp pullback after having earlier reached up to a key resistance target at 1.4600. This pullback accelerated in midweek after the Bank of Canada’s decision to keep its key interest rate unchanged at 0.5% was accompanied by a less-dovish-than-expected statement that contained no indication of future rate cuts. The Canadian dollar strengthened after this announcement, and was subsequently further boosted by crude oil’s bounce off its multi-year lows that occurred late in the week. USD/CAD’s sharp run-up in the past weeks and months, but especially since the beginning of the year, led to a prolonged period when the currency pair had been technically well-overbought. After hitting and exceeding progressively higher upside targets at 1.4000, 1.4200, and most recently, a new 12-year high above 1.4600, USD/CAD had been in extremely overbought territory and due for at least a moderate pullback. Now that this pullback has begun to happen, what may be next? While this is unlikely to turn into a full blown reversal, due to fundamental forces that continue to support the currency pair over the longer-term, there could be further room to the downside, especially if crude oil continues to climb from its multi-year depths. In the event of sustained trading below the 1.4200 level, a major support target for the pullback is at the key 1.4000 psychological support level. For the time being, however, the currency pair remains in a strong bullish trend. Any continuation of this uptrend above 1.4600 has a major upside target at the 1.4900 resistance level.
