At the end of January we highlighted the potential for USD/CAD to retrace back to its 50% level and print a swing low. It worked out well - although the 1.36 target did not arrive as soon as hoped. Still, it reached that key level on Wednesday - and it is a level that remains of interest.
Not only did prices fail to close above the 1.36 handle and weekly R2 pivot, but the area also lands around a prior congestion zone and high-volume node from the previous trend lower. And as RSI (2) reached oversold by Wednesday's close, it suggests a potential pullback - at least over the near-term.
US PCE inflation is an obvious risk event that could send USD/CAD (and the dollar in general) in either direction. But with volatility expected to be lower heading into the event, perhaps we'll get a cheeky pullback now as we head towards it.
Bears could enter short with a stop above the high and seek mean reversion to the weekly R1 pivot. Or step aside and wait for the PCE data to print; hot figures likely send USD/CAD above 1.36 whereas a refreshingly weak report could send it below 1.350.