USD/CAD: The 21-D SMA needs to hold or we are looking at a bearish extension back to > 1.2782

• We have seen a more hawkish than expected BoC today and despite a strong US dollar, the USD/CAD bears have managed to take the pair right down to the 200-4hr SMA and 21-D SMA as well as the rising support line.    
• Bank of Canada hikes and hawkish tone suggests more to come – ING

So, the fundamental question now is whether this technical level will hold once again and whether the BoC was  hawkish enough to permit the bearish channel’s downside? To answer that, we need to look at the divergence between the Fed and BoC.

The divergence between BoC’s and the Fed’s path

• BoC’s Wilkins: Possible the pace of rate hikes could be a bit faster, could also be a bit slower

James Knightley, Chief International Economist at ING Bank explained that “given the Bank of Canada still expects inflation to be at, or above, its target, and the growth outlook is still looking reasonable, we stick with our base case of two rate hikes in 2019.”

James Knightley added that this is slightly slower than the Fed’s predicted tightening path, where they see four more hikes from now until the end of 2019.

Key Quotes

“But considering the Canadian economy hasn’t received the huge fiscal boost the US has, along with potential downside risks associated with weaker wage growth, slowing house prices and the persistently large household/debt ratio, a slight divergence between the two central banks isn’t a surprise. Going into next year, any escalation in these downside risks could see the central bank having to rethink their tightening path, although today’s hawkish statement makes this look less likely.”

USD/CAD levels

There are three technical channel’s in play here:

• 1) We  have the longer term bull channel established since Sep 2017 lows.
• 2) We have the 6th  wave and current bearish channel which is a retracement channel established at the long-term  bull channel’s resistance line up at 1.3387 – This has met a low at 1.2782 – (Channel 1’s support line).
• 3) We have the third bull channel which is a reversal of channel 2, (the bear channel). This has met channel 2’s (the bear channel’s) resistance and bears are on top of the price after the hawkish BoC. The price is now testing the support of this interim  bull channel at the 21-D SMA. A break of which would likely leave channel  2 intact for further downside potential. If the  price continues to deteriorate in this channel, the risk is for a break of channel 1 (I.e, a break of the 21-D SMA opens the possibility of a retest of the month’s low of 1.2782 and channel 1’s support line – If broken, this sets a new bearish precedent). S1 is then located down at 1.2750 n the weekly sticks and S2 is located at 1.2379.