On January 18 the Bank of Canada's Mark Carney said that the economic situation in Europe is going to cost Canada $10 billion in lost economic output. As well, there continues to be concerns over Canadians' high debt levels and inflated housing prices. Not surprisingly the Bank of Canada seems intent on keeping interest rates where they are for the indefinite future.
After a brief break below 1.0100 last week, USD/CAD bounced back into wedge formation it has been in for the last 5-months. The fact it bounced back while US equity markets were rallying and the USD was weakening against the Euro points to the underlying weakness in the Canadian dollar (USD/CAD higher = Canadian dollar weaker).
In the weekly chart below, you can see a clear bottom bottom at .9425/50, following by a wedge consolidation pattern folllowing USD/CAD's break above 0.9900 back in August/September.
Typically these consolidation patterns resolve themselves in the same direction as the recent trend, which would be higher. If that happens we could easily see a re-test of the 1.0800 and possibly even higher.
I like using pullbacks to get long USD/CAD for an eventual break back above 1.0300. I am currently long from 1.01375 with an eventual target of 1.0800. However a clear break below the support line would quickly target .9900/1.000. If it breaks lower I'll likely reverse my view and go with the break.
