US Dollar to Canadian Dollar Breaks Through Key Trend-Line

The USD/CAD pair has breached key support from a long-term, major trend-line at roughly the 1.3600 level, increasing the probability of a continuation of the infant down-trend.

The Canadian Dollar continues to strengthen against most majors, and breached a major trend-line versus the U.S Dollar last week, increasing expectations of even lower rates to come.

The minimum price target for the pair is now at 1.3360, which is at the 61.8% extension of leg A of the current A-B-C pattern down from the highs, but it could go even lower, to 1.3275 using another method of calculating the target, which extrapolates the height of the move before the trend-line break lower for a post-break target.

A break below the 1.3480 lows might provide confirmation of further downside to the aforesaid targets.

Widespread expectations of a flat Q4 GDP reading to be released on Tuesday March 1, however, may indicate some short-term recovery in the pair, with a typical return move back up to the trend-line for a metaphorical ‘kiss goodbye’, one possible technical scenario fitting with the fundamental outlook.

Swissquote Bullish Longer-Term

Swiss Online lender Swissquote, meanwhile, highlight minor support at 1.3505, in their currency note on Monday February 29: 
“USD/CAD is now pausing after last week's sharp decline. The pair is now pausing above 1.3500. Hourly support is given at 1.3505.”

They continue to be bullish longer term, citing the break above the key 1.3065 resistance level as the original game-changer:

“In the longer term, the break of the key resistance at 1.3065 (13/03/2009 high) has indicated increasing buying pressures, which favours further medium-term strengthening.”

The break below the trend-line comes at the start of a potentially volatile week for the pair.

Tuesday 1 March see’s the release of Canadian GDP, which Joe Manimbo, Senior Market Analyst at Western Union is expecting to undershoot expectations:

“Caution also returned for the loonie on the eve of critical fourth quarter data from Canada’s that’s forecast to show the economy stalled.

“If the Q4 GDP should fall below zero it would stir anew the Bank of Canada rate cut debate, a scenario that could trigger a renewed bout of loonie weakness.”

Current Account Data Points to Flat GDP

Data out on Monday February 29 saw the Trade Deficit widen marginally by 70 million CAD, however, this was not as much as the 240 million analysts had forecast.

RBC Economics, commenting on the figures pointed out the positive Balance of Trade figures within the Current Account calculation, although it also inferred these were more due to falling imports rather than exports:

“The modest widening in the current account deficit in the fourth quarter was despite a modest improvement in the goods and services trade balance in the quarter.

“Earlier-released merchandise trade numbers pointed to a much larger improvement in the goods balance in volume terms, albeit driven largely by falling imports rather than rising exports, that leaves net trade still tracking a sizeable addition to fourth-quarter GDP that would build on 3.8 and 1.2 percentage point additions in the third and second quarters, respectively.”

The report inferred a positive impact from the merchandise trade surplus on GDP, however, it also argued such gains would be offset by lower industrial GDP, leading to a probable overall flat Q4 GDP figure predicted on Tuesday:

“Nonetheless, the monthly industry GDP data continued to point to flat GDP growth in the fourth quarter as a whole, with a large additions from net trade and continued growth in household spending (both consumer spending and residential investment) expected to be offset by further weakness in business investment (associated with the ongoing pull-back in the oil and gas sector) and a sharp drawdown in inventories.”

GBP/CAD - Target Now Met Though Still Going Lower

As far as the outlook for the British-Canadian pair goes, the down-side potential is not as apparent, and the porbabilities have increased that the recent steep sell-off in the pound could pause, since a significant price target has now been achieved.

The GBP/CAD pair broke down below the neckline of a double-top reversal pattern and moved lower, towards a minimum target at the 61.8% extension of the height of the double-top, at 1.9025, which was achieved (the pair is currently trading at 1.8845).

Since the minimum target has been achieved there is now an increased chance the pair could pause, stall or even reverse and start to recover.

MACD - a momentum indicator nevertheless continues to show strong bearish momentum, favouring more loses. 

The pair is now targeting the 100% extension of the double-top, at roughly 1.8600. A break below the 1.8729 lows would be a strong signal of continuation lower, towards the aforesaid target.

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