This Wednesday, in Canada the interest rate was cut from 0.75% to 0.5%. The Bank of Canada may further loosen the monetary policy to stimulate the Canadian economy. Falling oil prices, which affected export earnings and contributed to the GDP fall, significantly influenced this decision.
Back in mid-June, the Bank of Canada Governor Stephen Poloz described the financial situation as "extremely uncertain" due to the fall in oil prices, the high level of household debt and high housing prices.
Also the Canadian economy is affected by negative stats on Home Sales (-0.8% in June compared to May), while prices rose by 9.8%, and on Building Permits (-14.5% vs. -5.0% forecast).
Thus, amid the current economic situation and the steps taken by the Bank of Canada, the Canadian dollar keeps falling.
At the same time, the Fed Chair Janet Yellen confirmed the Fed's intention to raise US interest rate by the end of the year. Even if the rate rise is postponed until December, the US dollar continues to strengthen.
The current US dollar dynamics is affected by the GDP and US Labor Costs stats, released by the end of July, and the situation in the eurozone.
From the news, it is worth noting Janet Yellen Speech at 5:00 p.m. (GMT + 3) and a block of important US and Canadian releases at 3:30 p.m. (GMT + 3) tomorrow. This trading week is coming to an end; long positions should be closed as a correction may follow. In any case, the volatility is to be high.
Support and resistance
Yesterday the pair broke through the psychologically important level 1.2800 and continues to strengthen towards 1.3060 (2009 high). The growth towards 1.3300 and 1.4000 (2004 high) is also possible.
The pair is overbought. Fundamental factors push the pair up to new highs, but corrections are still possible. In this case, the recent resistance level 1.2800 may become a support level for a pair growth.
The pair is not likely to reach the level 1.2800, but still it may touch 1.2890, 1.2835 (March high).
OsMA and Stochastic indicators on the daily and 4-hour charts are in the buy zone.
Support levels: 1.2890, 1.2835, 1.2800, 1.2740, 1.2700.
Resistance levels: 1.2960, 1.3000, 1.3060.
In this situation, long positions are preferable. Set pending buy orders from 1.2900, 1.2890, 1.2835, 1.2800 with targets at 1.2930, 1.2980, 1.3000 and stop loss at 1.2700.
After the breakdown of 1.2600 open alternative short positions with targets at 1.2290 (Fibonacci 23.6%), 1.2200.