Data out of Canada has been coming in on the softer side with the economy still showing signs of significant deterioration in the face of the global meltdown. Broader market price action has been USD supportive into the end of the week and this could help to finally trigger a breakout in the pair.
Techs – There has been an ongoing contraction in volatility to the point where we have reached the apex of a very prominent triangle that has defined trade since late October. Falling triangle resistance now comes in the 1.2650 area and we will be looking for a daily close above the latter to confirm a breakout which will trigger a fresh upside extension exposing a direct retest of the 1.3020 October 28 trend highs. Ultimately, the upside break should project gains back towards 1.4005 (2004 Highs) over the coming months (measured move objective based off of widest point of triangle). Broader market price action has been USD supportive into the end of the week and this could help to finally trigger a breakout in the pair. We will look to establish a long position on a break to fresh weekly highs. Strategy: BUY @ 1.2620 FOR AN OPEN OBJECTIVE, STOP @1.2345. Stops to be trailed to cost on a break above 1.2675. Position to be closed out at NY close (5pm EST) if 1.2675 not broken. Recommendation to be removed if trade not triggered by NY close on Friday.
Fundamental Catalyst – Data out of Canada has been coming in on the softer side, with the economy still showing signs of significant deterioration in the face of the global meltdown. In recent weeks, we have seen disturbing unemployment numbers, the first trade deficit since 1976, and doubly worse than expected retail sales data, showing the biggest monthly decline since 1991, all clearly reflecting the dire state of the domestic economy. As such, the Bank of Canada has been extremely accommodative to offset the cooling within the economy and is expected to continue to do so which should help to narrow yield differentials back in favor of the US. We do not expect this morning’s data to offer any reprieve, with the more likely outcome, to open the door for more Cad selling (Usd/Cad buying).
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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