A bullish key reversal delivered from a known resistance zone should have USD/CAD traders on alert for a potential trend change following the bullish move seen in May. With the pair now sitting beneath 1.3800, which has provided support and resistance in the recent past, shorts could be established beneath the level with a tight stop above, targeting lower levels. A backtest and rejection at 1.3800 would strengthen the merits of the setup, especially as price action into month-end cannot always be trusted.
The intersection of the 50-day moving average and 50% fib retracement of the April bear move looms as the first target/assessment zone, although the breakout level of 1.3710 screens as a more appropriate target for those unwilling to wait for a potentially better entry level.
Strengthening the signal from Thursday’s candle, the oscillators are also rolling over, indicating bullish strength is now retreating, improving the prospects for shorts. RSI (14) has broken its uptrend and is now moving back towards the neutral 50 level. MACD remains positive for now, although the gap between it and the signal line is now narrowing as it rolls over. Should we see these trends continue, it may encourage other bears to join the move.
Aside from headlines relating to the Strait of Hormuz, which continues to have a vice-like grip on both crude futures and the big dollar, the other fundamental risk event traders should be aware of today is Canada’s Q1 GDP report. An annualized growth rate of 1.5% is seen, rebounding from the 0.6% contraction seen in Q4 last year.
By and large, Canadian data has been softening recently, often missing on the downside relative to expectations. While another undershoot would erode the prospects for shorts, the counterview is that even an in-line result, let alone a beat, may spark an asymmetric reaction function with so much pessimism built in.