The Bank of Canada kept rates unchanged at 1.0%. The press release highlighted the banks optimistic outlook for the global and Canadian economy. Unlike the prior rate statement, no reference was made for a weaker Canadian currency being good for exports. Economic growth last quarter was slightly stronger than the Bank anticipated. The knee-jerk reaction took price 26 pips higher to 1.1098 before quickly reversing all the way down to 1.1050.
Price action on the 240-minute USD/CAD chart displays the potential formation of a bullish butterfly that lines up with the psychological 1.10 level. Additional support may also come from the 50-Day Simple Moving Average (SMA) which currently resides at 1.0966. If downside momentum takes out the 1.0950 level, critical support rests at the 1.09 handle. A breach beyond that point could see a major correction continue until 1.0750.
The trade: Buy USDCAD at 1.1005 with a stop loss at 1.0955 and a take profit at 1.1115. The Risk/Reward Ratio is 1:2
Edward J. Moya
WorldWideMarkets Online Trading