Short-Term Choppy Reaction as Reversal Questioned

The USD/CAD hit a low of nearly 1.32725 yesterday which had last been seen in February, but an abrupt reversal since is likely challenging some traders.

As of this writing the USD/CAD is near the 1.33300 ratio as swift trading is being demonstrated.  Following the U.S Federal Reserve’s decision not to raise interest rates yesterday the USD/CAD did sell off quickly and hit a low of around 1.32725 which had last been seen in February of this year. However, since touching this lower ratio the USD/CAD has abruptly reversed slightly higher and some traders may be questioning why this has happened.

Traders must understand that USD/CAD is a major currency pair that has plenty of institutional volumes.  The past two weeks of price action for the USD/CAD has seen a definite trajectory lower, which was based on the notion the U.S. Federal Reserve would do exactly what it did last night – not raise the Federal Funds Rate in June. The decision not to increase interest rates last night had already been priced into the Forex market, meaning the USD/CAD had sold off in a major fashion prior to the FOMC Statement. The USD/CAD was near 1.36500 at the end of May.

Also factoring into the decline of the USD/CAD the past week of trading, has been the after-effects of the Bank of Canada’s decision to actually increase their borrowing rate last week, which saw the Overnight Rate increase by 0.25% to 4.75%.  The Bank of Canada’s action created strong downward price velocity in the USD/CAD, and after last night’s confirmation of U.S Federal Reserve tactics, financial institutions likely reacted with a burst of prompt selling knowing their outlooks had been achieved. What is to come in the next couple of months then became a problematic thought regarding the U.S Fed.

• Support near 1.33200 to 1.33100 should be monitored by traders; a fall below these ratios that can be sustained might be rather surprising today.
• Having fallen to a low last night not seen since February may be a signal that additional selling will develop, but behavioral sentiment may have to gain more impetus to create another wave of bearish momentum, the question is if this will happen now and be sustained.

Traders have certainly been able to take advantage of a bearish trend the past two weeks in the USD/CAD, but having achieved mid-term lows the currency pair might prove difficult in the short term. Speculators may believe there is more room to adventure lower, but looking for sticky lows may be difficult and perhaps the use of quick-hitting trades that use take profits to cash out realistic targets is the best opportunity for the remainder of the week.

Current Resistance: 1.33420

Current Support: 1.33200

High Target: 1.33610

Low Target: 1.32810

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