Last month’s analysis on USD/CAD highlighted a potential bearish Gartley pattern that targeted a major pullback despite the strong bullish trend that has been in place since September 10th. Today, two key releases about the Canadian economy helped spark a major reversal for the loonie.
The initial spike higher from 1.1170 to 1.1193 was driven on the headline miss of Core Retail Sales, but key takeaway from today’s economic releases was the surge in CPI. Inflation year-over-year had its highest reading since April 2012. The will likely prevent the Bank of Canada from acting (cutting rates to support the recently weak economic data) and thus driving USD/CAD all the way to the morning low of 1.1131.
With non-commercial reportable future positions last week exemplifying the overly short the Canadian currency by almost 3 to 1, a key reversal could be on its way for an Olympic rally for the loonie. Tentatively, the bearish Gartley pattern is still valid despite this week’s initial surge. If we see point D taken out, further upside may target the July 2009 high of 1.1723.
The trade: Sell USDCAD at 1.1150 with a stop loss at 1.1230 and a take profit at 1.0675. The Risk/Reward Ratio is just under 1:6
Edward J. Moya
WorldWideMarkets Online Trading