In September, Canada’s Raw Materials Price Index rose from 3.3% to 4.8% month-on-month and from 22.9% to 27.0% year-on-year, while the Industrial Product Price Index increased from 1.2% to 2.0% and from 13.2% to 14.5%, respectively. According to the latest release from Statistics Canada, stronger commodity and producer prices continue to support the Canadian dollar. An additional supportive factor for the loonie remains the monetary policy outlook: the Bank of Canada’s policy rate currently stands at 2.25%, and market participants continue to assess the possibility of a 25 basis point increase at the next meeting on October 28, especially while oil prices remain above the 100.00 mark for an extended period.
The US currency is also under moderate local pressure, with the US Dollar Index (USDX) returning to the 101.40 area and potentially ending the week near current levels despite a solid labour market report. According to the latest US Department of Labor data, initial jobless claims fell from 200.0K to 194.0K, while continuing claims rose to 1.728M versus analysts’ expectations of 1.720M. Against this backdrop, market participants continue to price in a high probability that the Federal Reserve will leave interest rates unchanged at its upcoming meeting.
Support and resistance levels
On the daily chart, the trading instrument is moving away from the support line of a local ascending channel with boundaries at 1.4250–1.4160.
Technical indicators are ready to strengthen the sell signal: the range of fluctuations of the Alligator indicator is widening, the fast EMAs remain significantly below the slow ones, and the AO histogram is forming corrective bars in the negative zone.
Support levels: 1.3960, 1.3810.
Resistance levels: 1.4050, 1.4230.
Trading Scenarios and USD/CAD Forecast
Short positions may be opened after the price declines and consolidates below 1.3960, with a target at 1.3810. Stop-loss: 1.4100. Implementation period: 7 days or more. Long positions may be opened after the price rises and consolidates above 1.4050, with a target at 1.4230. Stop-loss: 1.3920.
Scenario
| Timeframe | Weekly |
| Recommendation | SELL STOP |
| Entry Point | 1.3960 |
| Take Profit | 1.3810 |
| Stop Loss | 1.4100 |
| Key Levels | 1.3810, 1.3960, 1.4050, 1.4230 |
Alternative Scenario
| Recommendation | BUY STOP |
| Entry Point | 1.4050 |
| Take Profit | 1.4230 |
| Stop Loss | 1.3920 |
| Key Levels | 1.3810, 1.3960, 1.4050, 1.4230 |
