The Canadian dollar was the top-performing major currency on Wednesday but we would look to sell the strength.
USD/CAD is the most compelling chart we see among the majors. It has formed a clear double-top bottom on the daily chart and the recent two-day pullback looks like a good entry point.
The double bottom comes in around 1.02 at it was confirmed by the early January rally in the pair. The measured target of the move is 1.15 and that’s where we think this pair is going.
In the shorter-term, we have seen USD/CAD struggle to break above 1.0780 and there is resistance beyond that at 1.0872. These remain as significant hurdles and we will manage risk around them.
On the downside, there is some support at 1.0545 and we will put our stops here. That limits the downside to about 80 pips from the current level with a minimum upside of 140 pips and potentially 900 pips.
Adding to our conviction is the oil chart. We have seen oil bounce after falling on huge volume on Friday. It is now nearing its 100-day moving average at $75.73 and that will be resistance; as will be $77.