USD/CAD bearish below 200-DMA; stellar ADP 'not enough' dollar fuel

Currently, USD/CAD is trading at 1.3076, up +0.36% on the day or 42-pips, having posted a daily high at 1.3093 and low at 1.3027.

The American dollar vs. Canadian dollar continued yesterday's recovery after trading near a critical long-term support at 1.2967. However, political uncertainty distracted the pair from moving higher after reaching a short-term high at 1.3386 (Jan.20).

Today's US economic docket had a decent and positive surprise as the ADP Employment change printed a stellar figure at 246K which is 'a better than expected' result from the 165K consensus and previous 151K. Still, the USD/CAD pair gravitates in neutral territory trapped in a 70-pips range from high to low as the greenback awaits another FOMC statement. 

Historical data available for traders and investors indicates during the last 5-weeks that USD/CAD pair had the best trading day at +1.71% (Jan.18) or 227-pips, and the worst at -1.02% (Jan.17) or (133)-pips.    

Poloz: "Approach to inflation targets has been working reasonably well"
The Canadian Press, via Global News, reports, "Bank of Canada governor Stephen Poloz said the bank has been pursuing inflation targets for 25 years, and the average rate of inflation has been extremely close to target over that time. Poloz said the 2007-09 global financial crisis is one example where economic models struggled to explain what led to the crisis and what followed.

All Eyes on the Fed

The report continues, "He said it can take up to two years for a change in interest rates to have its full effect on inflation, and central bankers need tools that can forecast where inflation is likely to be two years from now so they can adjust monetary policy to hit the inflation target.He said the rising value of the U.S. dollar has taken the Canadian dollar with it, which is creating headwinds for Canadian exports. Global bond yields are also up since the new administration entered the scene. “That is affecting our mortgage rates already, which is already a source of slowing the Canadian economy.”

Technical levels to watch

In terms of technical levels, upside barriers are aligned at 1.3116 (200-DMA), then at 1.3386 (high Jan.20) and above that at 1.3500 (round figure). While supports are aligned at 1.2968 (low Jan.31), later at 1.2900-1.2880 range (horizontal support) and below that at 1.2763 (low August 18). On the other hand, Stochastic Oscillator (5,3,3) seems to retrace from the oversold territory and slightly head north, therefore, there is evidence to expect further dollar gains in the near term.  

On the long term view, if the 'double Doji' candlestick formation from November and December 2016 (1.3500-80 region) is in fact, a critical resistance-top, the upside potential seems limited for this currency pair. Then, to the downside, supports are aligned at 1.2967 (short-term 61.8% Fib), later at 1.2651 (long-term 50.0% Fib) and finally below that at 1.2435 (short-term 50.0% Fib).

If prices close and open above 1.3270-90 region (horizontal resistance, August 2015), only then, the previous long-dollar narrative would have a new opportunity to attempt a run against 1.3490 (long-term 61.8% Fib) and finally above that level the next logical challenge would be at 1.3800-20 (horizontal resistance).  

FOMC meeting: How could Trump's protectionism affect FED´s decisions?