FX.co ★ USD/CAD erases latest gains post BOC rate hike

The USD/CAD pair drops like a rock in the short term as the Dollar Index has turned to the downside. The currency pair registered a strong swing higher but it seems that the rebound was only a temporary one.

Fundamentally, the US PPI and the Core PPI came in better than expected, but the Dollar Index was overbought. On the other hand, the Canadian Dollar received a helping hand from the Bank of Canada which increased the Overnight Rate from 0.50% to 1.00% as expected. Hawkish BOC forced the pair to drop.

USD/CAD Massive Drop!

As you can see on the H4 chart, the USD/CAD registered only a fasle breakout above the weekly R1 of 1.2660, above the upper median line (uml), and through the 50% (1.2652) signaling that the leg higher could be over.

Technically, the price action and the RSI signaled a bearish divergence on lower timeframes. The median line (ml) represents the first major downside target. After its strong sell-off, the USD/CAD pair could try to rebound.

USD/CAD Outlook!

1.2650 represented a key level, we have former lows around this level. Failing to stay above it signaled a new sell-off. A major bearish engulfing here could activate a deeper drop. A temporary rebound towards 1.2650 could bring new short opportunities.

Also, a valid breakdown below the median line (ml), below 1.2575 could open the door for more declines.