- The US dollar rebounded against the Canadian dollar on Monday, with traders eyeing the key $1.40 level ahead of interest rate decisions from both the Fed and the Bank of Canada.
- Despite volatility, the broader uptrend remains intact.
- The US dollar initially dipped on Monday only to turn around and show signs of life.
It looks like we are trying to do everything we can to turn things around and take off to the upside, as the 1.40 level is a large, round, psychologically significant figure and an area that has been important multiple times. Ultimately, when I look at the dollar against the Canadian dollar, the first thing that I need to pay close attention to is that the Bank of Canada and the Federal Reserve both have interest rate decisions this week, which will naturally introduce even more volatility.
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Ultimately, I do think this is a scenario where traders continue to view the pair through the lens of a potential move to the upside. But you should also keep in mind that the interest rate differential continues to favor the US, regardless of what central banks do at this point. It’s also possible that this gap could tighten somewhat, but we must also consider the ongoing trade dynamics between the United States and Canada, which remain fairly strained and have a major influence on how this pair behaves. After all, Canada is heavily dependent on the US for its export market.
Inverted Head and Shoulders
That dynamic clearly plays into what we’re seeing here. The measured move of the inverted head and shoulders pattern opens up the potential for a move toward the 1.4250 level, an area many traders will be watching closely. I have no interest in shorting this pair, and although this week will likely be very noisy, it’s worth noting that we’ve been in an uptrend for some time. It certainly looks like we will continue to experience choppy but slightly bullish trading over the next several sessions. Once this week’s events pass, we should have greater clarity, but for now, it seems there are plenty of traders willing to step in and buy dips.
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