Yesterday, we wrote about the strength of the USD/MXN on the possibility that the USMCA trade agreement deal may be reached. On Tuesday, House Democrats and Republicans of the United States finally came together and agreed on a trade deal with Mexico and Canada, known as The United States-Mexico-Canada Agreement (USMCA). Both Republicans and Democrats are claiming this is a big win for American workers, with the ALF-CIO saying it is a vast improvement over NAFTA. The deal is expected to be voted on in the U.S. Congress before the upcoming recess, with both Mexico and Canada expecting to do the same.
One would expect the Canadian dollar to be bid after such an agreement was reached. However toward day's end, USD/CAD was close to unchanged after it pared gains on Monday from Friday’s strong U.S. Nonfarm Payrolls and Canada’s weak payroll data.
Source: Tradingview, FOREX.com
On the 240-minute timeframe, price has been trading in a sideways channel between 1.3020 and 1.3350 for the last six months. Price is currently trading near the midpoint of the channel near 1.3200. USD/CAD is likely to be rangebound until there is a catalyst to push it through either side of the channel. There are likely stops above and below the channel. Once one side is broken (including the false breakout through the top of the channel) there may be a stop run, which will push prices faster in the same direction of the breakout.
Source: Tradingview, FOREX.com
Many thought that a trade agreement among the three North American countries could be the catalyst to drive USD/CAD out of it long-term triangle, but that doesn’t seem to be the case. The pair continues to trade closer and closer to the apex in a tight range.
Source: Tradingview, FOREX.com
If there is a stop run above or below the channel, things may get interesting. This is because there are likely longer-term stops on either side of the weekly triangle formation. USD/CAD is so close to the apex that a stop run on the short-term timeframe could lead to a stop-run on the weekly timeframe. The bottom trendline of the weekly triangle is roughly 1.3100 (as is the 200-day moving average). The top trendline of the weekly triangle is roughly 1.3400.
Keep your eyes on both of those price levels for USD/CAD.