USD/CAD Rate Fails to Test October, RSI to Offer Bearish Signal

  


Canadian Dollar Talking Points

USD/CAD struggles to hold its ground following the failed attempt to test the October high (1.3348), and the Relative Strength Index (RSI) may offer a bearish signal as the oscillator threatens the upward trend from earlier this month.

USD/CAD Rate Fails to Test October,RSI to Offer Bearish Signal

USD/CAD continues to pullback from the monthly high (1.3328) as Bank of Canada (BoC) Governor Stephen Poloz tames speculation for an imminent rate cut, and the exchange rate may continue to give back the advance from the October low (1.3042) as it tracks the range-bound price action from the third quarter.

The fireside chat with Governor Poloz suggests the central bank will retain the current policy for the foreseeable future as BoC officials “think we’ve got monetary conditions about right given the situation.”

It seems as though the BoC is in no rush to alter the course for monetary policy as the Canadian economy is “still in a good place overall,” and the central bank appears to be on track to keep the benchmark interest rate on hold at its last meeting for 2019 as “the current degree of monetary policy stimulus remains appropriate.”

Image of Bank of Canada interest rate

In turn, Governor Poloz and Co. may largely endorse a wait-and-see approach on December 4, and more of the same from the BoC may keep USD/CAD within the range-bound price action from the third quarter as the Federal Reserve shows a greater willingness to take a break from its rate easing cycle.

With that said, the failed attempt to test the October high (1.3348) may bring the downside targets back on the radar, and the Relative Strength Index (RSI) may offer a bearish signal as it threatens the upward trend from earlier this month.

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USD/CAD Rate Daily Chart

Image of USD/CAD rate daily chart

Source: Trading View

  • Keep in mind, the rebound from the 2019 low (1.3016) has failed to generate a test of the Fibonacci overlap around 1.3410 (38.2% expansion) to 1.3420 (78.6% retracement), with the exchange rate largely tracking sideways as it remains stuck in the range bounce price action from the third quarter.
  • At the same time, the flattening slopes in the 50-Day (1.3216) and 200-Day SMA (1.3277) warn of range-bound conditions as the moving averages look poised to converge with one another.
  • More recently, USD/CAD appears to have marked a failed run at the October high (1.3348), and lack of momentum to break/close above the Fibonacci overlap around 1.3280 (23.6% expansion) to 1.3330 (38.2% retracement) may spur a move towards the 1.3220 (50% retracement) region.
  • The next area of interest comes in around 1.3120 (61.8% retracement) to 1.3130 (61.8% retracement) followed by the 1.3030 (50% expansion) region, which largely lines up with the 2019 low (1.3016).
  • Will keep a close eye on the Relative Strength Index (RSI) as it comes up against trendline support, and the oscillator may offer a bearish signal if it snaps the upward trend from earlier this month.

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— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.



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