EUR/USD Bull-Flag Formation Vulnerable To Dovish Draghi

Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/CAD

1.2542

1.2595

1.2526

USD/CAD extends the series of lower highs & lows carried over from the previous week, with the pair at risk of giving back the rebound from earlier this month as a continuation pattern unfolds.

The shift in USD/CAD behavior may continue to take shape in the second-half of 2017 as the 0.7% pickup in core Canada Retail Sales encourages the Bank of Canada (BoC) to further normalize monetary policy over the coming months. The comments following the July rate-hike suggests Governor Stephen Poloz and Co. are on course to implement higher borrowing-costs as ‘the output gap is now projected to close around the end of 2017, earlier than the Bank anticipated in its April Monetary Policy Report (MPR).’

In contrast, U.S. Treasury yields remain depressed, with Fed Fund Futures highlighting narrowing bets for another rate-hike in 2017 as many Federal Open Market Committee (FOMC) official ‘saw some likelihood that inflation might remain below 2 percent for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside. The less-hawkish stance may instill a more bearish fate for the greenback especially as Chair Janet Yellen argues ‘the federal funds rate would not have to rise all that much further to get to a neutral policy stance.’

USD/CAD Daily Chart

Chart – Created Using Trading View

Downside targets are back on the radar for USD/CAD as a bear-flag unfolds after the failed attempt to clear the former-support zone around 1.2770 (38.2% expansion) to 1.2780 (38.2% expansion), with the pair extending the bearish sequence carried over from the previous.

Need a break/close below the 1.2510 (78.6% retracement) to 1.2540 (61.8% expansion) region to open up the next downside hurdle around 1.2410 (100% expansion) to 1.2440 (23.6% expansion), which lines up with the 2017-low (1.2413).