“Float like a butterfly, sting like a bee. The hands can't hit what the eyes can't see.” - Muhammad Ali
The Canadian dollar plunged to a 3-weeks low of 1.3329 against the U.S dollar on Tuesday after a surprising missed in Canada Gross Domestic Product report, and exceptionally weak fourth-quarter economic growth on last Friday.
The Canadian’s economic growth slowed to 1.8% in 2018, compared with the 3% expansion in 2017, which casted doubts about the health of the economy, while Bank of Canada’s interest rate decision on Wednesday loomed.
Adding to this, a pull-back in oil prices this week, on news of OPEC output cuts, did little to help the battered Loonie, as the currency was further knocked down by a report, via Reuters, wherein Canadian pipeline operator Enbridge Inc., its Line 3 oil pipeline which usually carry heavy Canadian crude oil to U.S markets would be in service a year later than expected.
USD/CAD: TECHNICAL OUTLOOK
Flat set-up and inverted head and Shoulder patterns kinship suggest another crushing blow to the beleaguered commodity-linked currency in the coming weeks!
1. Irregular Flat set-up
On the USD/CAD hourly chart, in Elliott wave perspective, the decline from the 1.3327 high on 8th of February 2019, to the 1.3110 low on 25th of February appeared to be an “Irregular flat structure with an expanded diagonal in wave (c) of wave 2”, suggesting for a bullish run on the greenback towards 1.3375 followed by 1.3539 in the coming weeks.
2. Bearish Inverted Head and Shoulder pattern for the Canadian Dollar
On the Hourly Chart, another technical pattern which is also signalling a potential downturn on the Canadian Dollar is a bearish “Head & Shoulders “pattern, unfolding since early January 2019.
The Head and Shoulders pattern is generally regarded as a strong reversal pattern.
The Inverted H&S formation pattern consists of a price fall followed by a price bottom forming the Left Shoulder (1.3199 on 9th of Jan 2019), then a lower bottom forming the Head (1.3089 on 3rd Feb 2019), before a rise occurs once again to a neckline, followed by a drop forming the Right Shoulder (1.3110 on 25th Feb 2019), which is higher than the head. The trend line connecting the highs between the left shoulders, the Head and the right shoulder form a neckline.
Upon a break of the neckline, the price typically unfolds in a protracted thrust to a level that is equal to the distance between the “head and the neckline”.
The estimated price target up on the inverted H&S pattern is near 1.3590/1.3600.
On the flipside, a move back below 1.3089 would invalidate the bearish count on the Canadian Dollar!
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