The Canadian dollar rallied as oil prices rallied and made a nine-day high after a smaller-than-expected build in US inventories. Oil, Canada’s largest export also benefited from some technical buying as prices surged after recapturing the 200-day SMA.
In Canada, one of Finance Minister Bill Morneau’s top economic advisers warned that of significant downside risk for the Canadian dollar. He noted that much stronger US growth will spur Janet Yellen’s US Federal Reserve to raise rates at a faster pace, sending the greenback surging and depressing the loonie’s value.
Price action on the USD/CAD daily chart shows that recent consolidation has price respecting the 100-day SMA. If we see break below the 1.3300 level price may not find support until the 1.3175 to 1.3200 region. It is around that area that we could see price form a bullish Gartley pattern. Point D was targeted with the 78.6% Fibonacci retracement level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C move. If the bullish stance returns, key resistance will come from the 1.3450 to 1.3500 zone. If we see the bullish rebound stall, major support remains the 1.3000 level.
The trade: Buy USD/CAD at 1.3175 with a stop loss at 1.3125 and take profit at 1.3325. The risk/reward ratio is 1:3