Fibonacci Retracement Points to a 1.3465 USD/CAD

The USD/CAD continues to find support as traders purchase the greenback against its cousin to the North.  Yields continue to move in the US’s favor as it appears the central banks are on diverging paths with the Bank of Canada poised to ease rates again in an effort to fend off the negative effects of lower oil prices.

The bank of Canada is likely to cut another 25 basis points off of their benchmark interest rates in March, as the Bank takes out further insurance against the oil price plunge. This comes despite consumer confidence rising by 2.5% to a five year high level of 107.0 in January after surging 10.7% to 104.4 in December, boding well for consumption and housing activity.

Janet Yellen is also on deck and could provide additional support for the greenback.  Most viewed the January minutes as dovish, which could easily be turned in her testimony to congress known as the Humphrey Hawkins testimony.

Price action is yet to take out the January highs near 1.2798, but a break of this level would likely lead to a test of the 2009 highs at 1.3062.  To evaluate the next level of target resistance above 1.3062, I used a Fibonacci retracement on the monthly chart using the highs in the USD/CAD in 2002, and the lows made in 2007.

The Fibonacci retracement uses the 38.2%, 50%, and 61.8% levels of the move to determine the target levels for price action.  The USD/CAD seems to be holding steady near the 50% retracement around 1.26.  The 61.8% retracement level of the move comes in near 1.3465, which would be the next target if prices were able to break resistance at 1.3062.

Long term monthly momentum is robust as the MACD ( moving average convergence divergence index ) generating a monthly buy signal in December and continues to print in positive territory with an upward sloping trajectory. 

On a daily basis you can see that the USD/CAD is consolidating and the Bollinger Bands are contracting.  The contraction of the Bollinger bands, which is similar to a decline in the Bollinger band width, reflects a decline in historical volatility.  This is generally a prelude to a breakout, as was seen in November of 2014.  Daily momentum is still negative but seems to be turning, and could generate a buy signal in the near future if the currency pair grinds higher.