USD/CAD Exchange Rate Prediction – The Dollar Rallies Despite Solid Canadian PMI Data

The USD/CAD continue to break out on Wednesday as overall dollar strength and lower oil prices weighed on the Loonie. The Fed Minutes showed that despite an uptick in the economic output, the Fed was not ready to signal that it would consider tapering its bond purchase program. There was some discussion about first potentially tapering mortgage securities before Treasury securities to minimize elevated housing prices. Traders continue to eye the Canadian employment report scheduled to be released at the end of the week.

Technical Analysis

The USD/CAD continued to trend higher after breaking out above trend line resistance on Tuesday. Short-term support is seen near the trend line at 1.2442. Additional support is seen near the 10-day moving average at 1.2378. Resistance is seen near the April highs at 1.2654. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. Positive momentum is beginning to accelerate as the MACD (moving average convergence divergence) histogram is printing in positive territory with an upward sloping trajectory which points to a higher exchange rate. The relative strength index (RSI) moved higher also reflecting accelerating positive momentum as the index broke out. The 10-day moving average recently crossed above the 50-day moving average showing that a short-term uptrend is now in place.

Canadia PMI Beats Expectations

According to the Ivey Canadian Purchasing Managers index released on Wednesday, Canadian economic activity accelerated in June as employment and prices rose. The  PMI rose to 71.9 from 64.7 in May. Since March, that was the highest level for the index when it notched a 10-year peak of 72.9.