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Chart Analysis : Potential turning point for CAD

CMC Markets

Since the beginning of this month, the loonie has been stuck in a trading channel beween $0.9100 and $0.9200. Today, the dollar has become another beneficiary of the Tim Hortons takeover, outperforming other major currencies. CAD has attracted new interest this week as the Burger King takeover of Tim Hortons reminds the street that Canada is an attractive country to do business, with low corporate taxes and political stability. It also has sparked speculation that there could be more deals on the way which could increase demand for Canadian Dollars to pay out Canadian shareholders on takeover deals. Technically, CAD appears to be at a crossroad, with technical analysis showing mixed signals. A bearish head and shoulders top has been forming in the price and CAD is trading below its 200-day moving average suggesting an emerging downtrend. There is a positive divergence between the price and the RSI indicator which suggests downward momentum is slowing and an upturn pending if RSI can clear 50. A breakout from the current channel through $0.9200 would also retake the 200-day average and signal the start of a new upleg that could potentially challenge a measured $0.9300 or the July high near $0.9400. A breakdown below $0.9100 on the other hand, would complete the H&S top and signal the start of a new downleg that could test a previous low near $0.9050, or $0.9000 where a measured move and a round number cluster. CAD has the potential to be active through the rest of the week based on economic speculation as well. With a US GDP revision on Thursday and Canada Q2 GDP on Friday traders may get a better idea of whether Canada continues to lag behind the US economic surge or if it starting to catch up. Note that with the launch of our Next Generation trading platform, Canadian clients now have the ability to trade CADUSD (the pair usually quoted in the Canadian media) in addition to USDCAD (the pair usually traded by global convention). This enables clients who like the loonie to go long it rather than having to go short.

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