USDCAD has been moving sideways on its 1-hour time frame, bouncing off support at the 1.3285 area and resistance at 1.3400. Price is currently testing the top of the range at the moment and if it holds as a ceiling, another drop to the range support could be due.
The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. This suggests that the range resistance is more likely to hold than to break. Stochastic is indicating overbought conditions and is turning lower, also hinting that sellers could take price back down to 1.3285.
However, if a breakout occurs, price could head north by an additional 100 pips or the same height as the chart formation. Similarly a break lower could push USDCAD lower by 100 pips as well.
Economic data from the US has been in line with expectations as the ISM manufacturing PMI fell from 57.7 to 57.2 as expected. The sub-index for prices advanced from 68.0 to 70.5, outpacing the consensus at 68.5, while the employment component also increased. Indices for production and inventories were down.
In Canada, the BOC Business Outlook Survey indicated optimism among respondents that domestic demand is picking up and that upward pressures are seen on price levels and hiring. However, the Loonie was dragged down by the dip in crude oil as traders await the latest batch of inventory reports.
Both the EIA and API reports reflected a slower than expected build in stockpiles for the other week so a similar outcome could give a boost to crude oil and the Canadian dollar. On the other hand, another strong increase could revive oversupply concerns. FOMC minutes, NFP data, and Canadian jobs figures are due later on in the week.
By Kate Curtis from Trader's Way