The Canadian dollar may be nicely poised to breakout significantly as Canada’s largest railroad remains optimistic about the rest of the year and the Fed may delay or make the smallest of reductions to its $85 billion a month purchases in Treasury bonds and mortgage-backed securities.
Canadian National Railway posted a solid second quarter and more importantly for currency traders, an optimistic outlook regarding continued success in Canada’s exporting of Western Canada Select Crude. Rail freight revenue is benefiting from U.S. demand, a hot energy market and a relatively weaker Canadian dollar. The positive outlook may call for continued loonie strength.
As talk about tapering gradually fades away after every poor U.S. statistic, the commodity currencies continue to appreciate. Today, sales of existing U.S. home sales in June surprisingly fell and it spurred concerns that higher mortgage rates might help keep the Fed focused on an accommodative policy stance in order to avoid disrupting the housing the recovery.
After rising modestly for most of this year, USDCAD weakness appears to be firmly in place after strong selling demand defended the 1.06 level. The current bias is for further Canadian dollar strength, but the downward move may be limited towards 1.0278 if the potential bullish Gartley pattern highlighted in purple is valid. If price has a daily close above the white trend line, the impending USDCAD breakdown may be over. If we see a daily close below 1.0230, the next key downside target may be 1.0150.