USD/CAD Exchange Rate Forecast – USD/CAD Rallies Breaking Out Ahead of FOMC Minutes

The USD/CAD broke out on Monday, closing above trend line resistance as the dollar continued to gain a foothold. Despite falling U.S. yields, the dollar benefited from safe-haven flow ahead of two important Canadian data points. Tuesday’s US FOMC minutes are the highlight of the week. There was little discussion of dot plots in the meeting, which likely means the minutes will not be a hawkish as thought. Canada reports PMI on Tuesday and then the employment report on Friday.  After two months of losses, June’s employment is expected to have rebounded. The U.S. ISM non-Manufacturing Index fell in June to 60.1, missing expectations that it would decline to 63.5. Leveraged funds added to long positions in the CAD and reduced short positions according to the most recent commitment of traders report.

Technical Analysis

The USD/CAD broke out on Monday, closing above trend line resistance at a two-week high. Target resistance on the currency pair is seen near the April highs at 1.2654. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. Medium-term positive momentum is reaccelerating as the MACD (moving average convergence divergence) histogram is printing in positive territory with an upward sloping trajectory which points to higher prices.

According to the latest commitment of traders report released for June 29, hedge funds added to long positions in futures and options and reduced short-positions. Open interest that is long the CAD is nearly double the open interest that is short-CAD. Leveraged funds continue to bet on dollar weakness with futures contracts bets.