Prior to the Bank of Canada bombshell, early in New York, the Canadian dollar was up a modest 0.2% to 1.0264. Leading up to the BOC decision, Scotiabank reported that the market is pricing in only a 25% chance that the Bank would cut rates over the next 12 months.
The Canadian currency got crushed after the surprise decision to cut the overnight rate by 25 basis points to 0.75%. USD/CAD jumped immediately from 1.02064 to 1.2257. After tentatively respecting the 1.2300 handle, price extended its next leg higher once the 200-monthly SMA (which was trading at 1.2325) was breached. The pair was bought all the way to 1.2393 before settling back to 1.2360.
Price action on the USD/CAD weekly chart shows that the pair has skyrocketed beyond key technical level of 1.2279, which is the 78.6% Fibonacci retracement of the 1.3062 high to .9405 low move. The current bullish trend is now poised to have 9 consecutive bullish weeks in a row with no major resistance until the 1.30 region.
If oil prices remaining in bear market territory and concerns grow that the Bank of Canada may cut again, the pair may not have much resistance until the 1.4000 level. It is around that area that a bearish Gartley pattern may form.
If upside momentum stalls out, major support will come from the 1.20 zone.
The trade: Buy USDCAD at 1.2350 with a stop loss at 1.2250 and a take profit at 1.2950. The Risk/Reward Ratio is 1:6
Edward J. Moya
WorldWideMarkets Online Trading