USDCAD Short-Term Pullback (July 27, 2015)

Price surged to the 1.3100 mark after the breakout and could be in for new highs after this correction.

At the moment, price is finding support around the 50% Fibonacci retracement level but might be due for a larger pullback to the 100 SMA. This moving average is above the longer-term 200 SMA, indicating that the long-term uptrend is likely to carry on.

At the same time, stochastic is showing a bullish divergence, with price making higher lows and the oscillator drawing lower lows. Once stochastic moves out of the oversold area, the pair could regain ground. RSI, meanwhile, is still moving down and suggesting that the correction isn’t over yet.

Event risks for this trade setup include the FOMC statement, which could show whether or not the Fed is ready to hike interest rates before the end of the year. The liftoff has been pushed back from June to September and even possibly until December.

As for the Canadian dollar, falling commodity prices have been weighing on the Loonie these days, as Brent crude oil has fallen below $55/barrel once more. This could mean another leg lower for oil prices and the Loonie, which might spur a risk-off environment in favor of the safe-haven US dollar as well.

Event risks from Canada include the release of the Canadian monthly GDP reading on Friday. Other potential movers are the US durable goods order report today and the advanced GDP reading from the US on Thursday. Strong data from the US could remind traders that the Fed is moving closer to tightening monetary policy, which might drive USDCAD up to new highs. On the other hand, weak figures could cast more doubts on the rate hike and spur a break below 1.3000 for USDCAD.

By Kate Curtis from Trader's Way