The resistance of the descending channel limits the rise before the BoC

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  • USD / CAD is struggling to capitalize on the strong gains of the previous day and is moving lower on Wednesday.
  • A combination of factors should help limit the decline before the latest BoC policy decision.
  • A sustained breakout of a multi-month descending channel was needed to confirm a bullish bias.

The USD / CAD pair has moved lower throughout the first half of the European session on Wednesday and has now returned some of the strong positive movement of the previous day. At the time of writing, the pair is trading near the daily lows, just below the 1.2600 level and losing around 0.15% on the day.

The slide lacks an obvious fundamental catalyst and could be attributed to some repositioning ahead of the Bank of Canada’s policy decision on Wednesday. Also, a combination of factors should help limit any significant drops, at least for now.

The US dollar has built on the previous day’s rebound from multi-week lows and gained additional boost from a rally in US Treasury yields. Apart from this, crude oil prices more Weaknesses could weigh on the Canadian dollar, a currency pegged to commodity prices, and offer some support to the USD / CAD pair.

Looking at the technical picture, the previous day’s strong rally of nearly 150 pips from the 1.2480-70 region has stopped near resistance marked by the upper bound of a four-month descending channel. This should now act as a hot spot for short-term investors.

Meanwhile, bullish technical indicators on the hourly / daily charts support the prospects for an eventual breakout above the aforementioned trend channel. However, it will be prudent to wait for a sustained move above the 1.2625-30 resistance zone before positioning for further gains.

Above the mentioned barrier, the USD / CAD pair is likely to break above intermediate resistance near the 1.2670-75 region and aim to regain the round 1.2700 level. Momentum could extend further towards the next big hurdle near the 1.2740 resistance zone.

On the other hand, immediate support is at the 1.2565 region. Sustained weakness below this level could make the USD / CAD vulnerable to accelerate the slide towards the key 1.2500 level. This is closely followed by the strong horizontal support at 1.2480-70.

Some follow-on selling will negate any short-term positive bias and lead to some technical selling. This, in turn, could drag the USD / USD pair towards the round level of 1.2400 and allow the bears to challenge the support of the yearly lows near the 1.2365 region.

USD / CAD daily chart


USD / CAD technical levels


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