The Bank of Canada kept its main interest rate at 0.5% and had a slightly optimistic tone with its rate statement. The Bank highlighted solid household spending, a strong US recovery, a weaker loonie, and the effects of the previous two rate cuts are supporting the current economic recovery.
Immediately following the rate decision, USD/CAD fell from 1.3245 to 1.3165 and eventually made a session low at 1.3153. Major support currently resides at the 1.3120 level. If we continue to see further pressure, price may eventually target the 1.3065 - 1.3025 area. It is around that zone that we could see the formation of a bullish butterfly pattern.
If momenutm indicators regain their bullishness, we could see a rally towards recent resistance from the 1.3310 level. If the US dollar becomes excessively strong, we could see price target the 1.3550 region.
The Trade: Sell USD/CAD at 1.3250, with a stop loss at 1.3270, and a take profit at 1.3065. The risk/reward ratio is almost 1:4.
Edward J. Moya
Senior Market Strategist
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