Risk assets have improved since Obama took the podium to deliver his first State of the Union address. There was nothing particularily bullish about the speech but stock futures took off, the euro rebounded from below 1.40 and USD/CAD has formed a short-term triple-top.
The parameters of the short-term top are 1.0691 to 1.0591 — a perfect 100 pip range that has been tested three times on the topside and three times on the bottom. The pair is often prone to range trades and we will be keeping an eye on this one because a breakout will likely prove forceful.
On the downside, we have the 100-hour moving average as support as well as the support at 1.0591. We would expect a fall below this support to target at least 1.0500 with 1.0460 as the preferred scenario.
On the topside, the market is facing strong resistance at 1.0750, so we would be prone to taking profits quickly on a breakout. But we would also be eager to buy a break of 1.0750 with 1.0850 as a target.
Overall, we have seen a substantial rally in USD/CAD since falling to 1.02 in the middle of January. The daily chart shows a nice double-bottom, however, and we would prefer to be buyers as long as it remains above 1.04. We would see a correction to 1.0450 as an ideal buying opportunity.
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