USD/CAD: Starting A Long Term Downtrend
Alan Posner | Apr 26, 2015 07:43PM ET
For nearly three months the USD/CAD pair has been in a consolidation period. Looking at the first chart below, price broke through the 1.24 area on January 22nd and retested this area establishing it as support on January 27th. Soon thereafter on January 30th, price established a high just short of 1.28 and from there fell and subsequently rallied on multiple occasions until April 15th. This period of consolidation has formed a top in a long term rally USD/CAD started in September 2012.
From a fundamental perspective this consolidation/top has been constructed around falling oil prices and a weakening Canadian economy . The quarterly GDP numbers fell in Q2-Q4 2014: 0.9, 0.8, and 0.6. The significance of the price selloff on April 15th is the Bank of Canada’s decision not to cut the overnight lending rate lower than the current .75%. The BoC clearly was more concerned about keeping inflation under control versus trying to stimulate the economy through monetary stimulus. The forex market responded by projecting lower economic growth numbers moving forward.
This analysis means USD/CAD will continue to fall for an extended time and rallies are best sold. Where will this sell off end? Looking at the second chart (weekly chart) we can see the 50% fibonacci retracement from the price low on September 9th, 2012 to the high on March 16th, 2015 rests at 1.1227. This is an area price has found resistance in February and March of 2014 and been treated as support in October and November of 2014. This is the first area price may find longer term support.
Significant news this week from Canada on Thursday when their monthly GDP report is released.
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