USD/CAD extended downside movement yesterday and closed around 1.1011 after Yellen remarks about tapering in asset purchase program.
The pair is being traded around 1.0987 at the time of writing; immediate hurdle can be seen near channel resistance which is currently at 1.1072. A break and daily close above channel resistance will accelerate the bullish momentum, hence exposing 1.1223 that is swing high of previous wave.
On downside, the pair is expected to find huge support near 1.0861 i.e. a confluence of 55 Daily Moving Average (DMA) and 38.2% fib level. A break and close below 1.0861 support area shall target channel support that is currently near 1.0770, and then 1.0750 which is 50% fib level.
It is pertinent that Commodity Channel Index (CCI) is dipping below oversold zone with -134 reading on daily chart, a read below -100 signals oversold sentiment. Relative Strength Index (RSI) is however in neutral zone that means more downside movement is still possible. Negative divergence can also be noted with MACD on four-hour time frame which is always considered a very strong indication of downside risk.
Janet Yellen on Tuesday said that she would carry on her predecessor’s policy of gradual tapering in monthly asset purchase program. However, she looked concerned about labor market performance. “Although growth in the US picked up over a last few months, but recovery in employment sector is still very far from completion,” Yellen said. About recent non-farm payrolls report, new fed chairwoman said we have to assess the non-farm payrolls report patiently before jumping onto conclusions; policymakers will require concrete evidence to slow the pace of tapering in stimulus, she added. FOMC policymakers will gather on March 17-18, thus they will analyze both January and February job data before any decision about further tapering in asset purchase program worth $65 billion.