Bank of Canada has kept its interest rate at a low of 0.5% since Apr 2009.
Considering Canada as one of the top 10 crude oil producers in the world, it is one of the currencies that is highly correlated to crude oil. Thus, the Canadian dollar or Loonie is also in the class of Commodity Currencies.
In view of its coming interest rate announcement on 19 Jan, there is a natural tendency to see how it might affect the Loonie and perhaps to make a profit on speculation.
First, let’s see a long term view of the Loonie (USD/CAD) as refer to the weekly chart below.
You will notice that the Loonie has been strengthening since last year i.e. USD/CAD has been falling.
Currently, we are within a support zone for USD/CAD and the falling wedge pattern is nearly formed. So it does look like a reversal of the current downtrend is coming.
Second, with reference to a 4 hourly chart, it shows us a different perspective.
It seems that there is a downward channel and the Loonie just bounced off a resistance line, following the direction of the trend channel.
Is there something which the chart is trying to tell us about the Big players’ bias on this currency pair? What will be the next direction of the Loonie? It could fall on 2 possibilities.
A) Channel Breakout
Should there be a channel breakout for Loonie, it shows that the falling wedge reversal pattern is validated , as shown on the Weekly chart. This will only be made invalid if Price hits below 2009′s low to parity (1 USD == 1 CAD).
B) Channel Follow-Thru
If Price tracks this 4 Hourly channel and follows thru, then the recent support / resistance line as shown has been a focus for most traders, thus, likely to push to 2009′s low or even to parity.
But then again, with the above analysis and anticipation, the outcome is known only when Price action is shown on the chart.
I believe we will know more evidently after the Bank of Canada makes its interest announcement today.
