USD/CAD: July lows might be in play ahead of Fed and BoC meetings

The Canadian dollar’s bull run against the US dollar took a break yesterday after the USD/CAD pair reached new marginal lows. The pair hit a low of 1.3053 in yesterday’s trade — the lowest level since July — but the US dollar recovered some ground to close the session near its opening price.

While there are no important market reports from Canada and the US scheduled for today, the positive outlook for the CAD may continue in the short-term given that the relatively steady monetary stance from the Bank of Canada contrasts with the dovish Fed. Both central banks have their monetary policy meetings next week.

Last week’s CTFC CoT report showed a significant rebuilding in the market’s bullish view on the US dollar, with the aggregate long position in the currency increasing over $2 billion in the week ending October 20. This is the highest bullish bet since June and poses a risk of an upcoming extreme in bullish positioning. Long positions in the Canadian dollar rose $583 million last week, representing an increasing trend.

From a technical standpoint, the upturn in the Canadian dollar started with a double top pattern in the USD/CAD pair combined with a bearish divergence in the RSI. While the move looks currently overstretched, the pair could retest the July lows around the lower 1.30xx levels ahead of next week’s BoC and Fed meetings. A shorter-term support level is the 1.3053 low of yesterday.

To the upside, sellers may join the market near the 1.3130 level, which represents the neckline of the double top pattern and an important mid-term resistance. As of 10:20 a.m. London time, the US dollar vs. Canadian dollar pair traded at 1.3061.

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