USD/CAD had a 200-pip reversal from near13-year highs following yesterday’s Bank of Canada decision to keep monetary policy steady. Following the decision, Bank of Canada Governor Poloz said, “the likelihood of new fiscal stimulus was an important consideration in the bank’s decision.” He highlighted that the Bank is mindful that further rapid depreciation of the loonie(Canadian dollar nickname) could push overall inflation higher relatively quickly. The initial reaction saw USD/CAD drop over 100 pips. The overall tone was less dovish. Currently price is trading around the key 1.4450 support level.
The USD/CAD daily chart displays the bullish trend was firmly in place once price took out the 1.40 handle. Price also initially invalidated the bearish ABCD pattern that formed on January 15th. Point C was confirmed just ahead of the 50.0% Fibonacci retracement of the A to B leg, while Point D was targeted with the 261.8% Fibonacci expansion level of the B to C move.
If the bearish reversal continues, the next support level is the 1.4000-1.4100 zone. If we see a daily close below the 1.40 level, price may target the 50-day SMA which currently trades around the 1.3731 level.
If we see do see another drop in oil prices and the loonie does not take out the 1.47 level, we could could see a major top here for USD/CAD.
The trade: Sell USD/CAD at 1.4525 with a stop loss at 1.4625 and take profit at 1.4125. The risk/reward ratio is 1:4