USD/CAD forex signal: Symmetrical triangle pattern forms

The USD/CAD exchange rate has risen for three straight days as the US dollar index makes a strong comeback. It also jumped after the relatively encouraging Canadian consumer inflation numbers, which came out on Tuesday. 

Canada inflation, Fed minutes

The main catalyst for the USD/CAD price comeback is the strong DXY index. The closely watched index jumped to above $104 as concerns about the Federal Reserve remained. Earlier this year, the consensus among investors was that the Fed would start its pivot possibly in the first quarter of the year.

Recent data, however, have pointed to a more resilient Fed. For example, the labor market remains extremely tight, with the unemployment rate moving to a 53-year low of 3.4%. Similarly, the headline consumer price index (CPI) remained stubbornly above 6%.

Therefore, expectations are that the Fed has between 75 and 100 basis point rate hikes to go. Analysts at Goldman Sachs believe that it will hike in the coming three meetings. The Fed minutes will provide more color about what to expect. In a note, analysts at ING wrote that:

“With markets pricing in close to a 5.50% peak rate, we would essentially need to see evidence that multiple members voiced the desire to hike by 50bp at the start of February. That would back the cause for a 50bp move in March, and likely lift the dollar.”

On the other hand, there is a possibility that the Bank of Canada (BOC) is nearing its hiking cycle. In its first decision of the year, the bank showed that it will only deliver one more rate hike. Fortunately, it seems like Canada’s inflation is moving in the right direction.

The headline consumer price index (CPI) dropped by 0.6% on a month-on-month basis. It also fell from 6.3% in December to 5.9% in January. Core inflation also dropped to 5.0%..

USD/CAD technical analysis

USD/CAD chart by TradingView

The USD/CAD price has been in an upward trend in the past few days. It has managed to move from a low of 1.3280 last week to a high of 1.3553. The pair has formed a symmetrical triangle pattern that is nearing its confluence point. Also the pair has moved above the 25-day and 50-day moving averages. 

Therefore, I suspect that the pair will start retreating as sellers target the lower side of the triangle pattern. If this happens, the next key level to watch will be at 1.3300.