USDCAD – Technical Outlook

Bank of Canada interest rate decision

Bank of Canada (BOC) governing council members come to a consensus on where to set the rate. Traders watch interest rate changes closely as short term interest rates are the primary factor in currency valuation. 

The overall sentiment is that rates might be increased again even though inflation has decreased. The current rate hikes have also slowed down Canada’s housing market significantly. Furthermore, economists predict the country’s GDP to rise by % only.

The BOC raised the interest rate with 50 bps in December 2022, taking it up to 4.50%.

The report is due Wednesday, 25 January 2023, at 17:00 GMT.

Technical Analysis Daily Timeframe

Moving Average(MA):

On the Daily timeframe, the USDCAD price is trading both below the 200 and the 50 moving averages, meaning on the higher time, the market is bearish.

Relative Strength Index(RSI):

The RSI line is at 41.81, showing a neutral overbought and oversold sentiment. There is no divergence seen on the RSI indicator.

Analysis using price action:

USDCAD is bearish on the daily time frame. The market formed the bottom at $1.32259 on 15th Nov 2022. Bulls at this stage gathered and started taking prices higher; with this bullish move, the price broke the previous swing high at $1.35160 and started to form higher highs and lows. The price also maintained to trade inside the bullish channel. 

The price, however, failed to break the resistance above at $1.38053 and instead started to trade down after forming a swing high at $1.37050. From here, the price broke below the bullish channel and started losing pips. The price is now forming a lower high and lows low, signaling a bearish move.

A physiological level at $1.35160 will act as a resistance to the current price point. The price is also near the previous swing low; if this price point is breached and the candle moves below this zone($1.33520), it might trade further down to $1.32318, which is strong support.

Potential pivot points using Price Action:

This considerable resistance and support level can enter or exit when approaching future market openings.

Key Trading Recommendation

The December rate hike was the highest the BOC has gone since 2008. However, further rate hikes might be required to bring inflation down.

Traders should avoid entering positions during these news events since the market will have higher-than-average volatility, meaning that currencies could move in either direction without a definite trend for a short while.

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