The CAD could get a boost from the BoC

Fundamental analysis

Market participants expect the Canadian Central Bank to hike interest rates during their meeting today (Wednesday!). Also professional fund managers like more than half of Canadas biggest money lenders seeing the same path: more rate hikes are likely going to follow as the December jobs report came in more positive than expected, showing a stable economy for now. The country has added 104.000 new jobs, which itself has increased the chances to almost 90% for a fresh rate hike. This evidence points out that the impact to a rather slowing economy is likely limited, at least compared to what economists had anticipated before. Currently another 25-basis points increase is likely baked in markets, which still could help the Loonie gearing up momentum after the news event.

Comments from the governor of the Central Bank, Tiff Macklem, however, have painted to only most rate hikes in the near futures as the Bank wants to act data dependent. Since March 2022 the Bank has hiked rates several times by a total of 4% to a total of 4.25%.

Positive sentiment for the Canadian Dollar also might come from the oil market. In recent weeks oil has traded in a stable pattern showing some potential positive sentiment for now. Should prices rise further, this generally also helps the to push the Loonie higher.

Technical analysis

Today we like to examine the USDCAD currency pair. In particular the weekly chart is interesting to us as the market might break out from current levels soon. Having traded on a small support zone the market, however, was not able to regain momentum above the psychological resistance level at 1.3400. In particular the move from last week, where the market went to the upside shortly but then later fell again, tells us that the zone is clearly acting as a resistance level.

The current “Pinbar” candle from last week also spiked through the 10- moving average as well as the 20- moving average and might hence indicate that prices could fall further. The moving averages also seem to contract showing a slightly falling trend.

This week the market has not moved substantial and might be only wait for further news to trigger a bigger move.

Trade idea:

We like to wait for the market to guide us into a good trading opportunity for now. Should prices fall further and continue to trade within the recent trend to the downside we like to follow selling the market to the downside. The interest rate from the BoC might help the trade to gear up momentum. Since the upside seems to be limited, we have a great spot to put our stop loss, should the trade not move into our preferred direction. To the downside we have three targets, which could get be reached should the US Dollar weakness continues. We like to sell at 1.3340 with a sell stop order.

⛔️Stop loss: 1.3495
🎯profit 1: 1.3245
🎯profit 2: 1.3165
🎯profit 3: 1.3020

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