The Canadian dollar is up almost 1% against its US counterpart, 1.4310, in early Monday trading, following reports that Canadian Prime Minister Justin Trudeau may announce his resignation on January 6th after nine years at the helm. Markets are taking the news positively, as it suggests that the country’s new leader could boost growth with new economic measures.
Often, markets fall on news of a change of government due to the uncertainty premium. However, it seems that this time, too much negativity was built into the Canadian Dollar price, resulting in a lack of fresh sellers.
Technically, the USDCAD formed a double top as it approached the 1.4450 level, a typical pivot pattern that is reinforced by the divergence between the price momentum and the RSI indicator, indicating that the upward momentum has run out.
The current sharp decline could be the beginning of a reversal, something the markets have been reluctant to do in recent weeks. Next, it is worth considering potential downside targets. The first such target looks to be the 1.42 area, which is the correction level of 76.4% of the growth amplitude from September to the December peak.
A classic pullback to 61.8% would take the price to 1.4060. History also suggests that a decline from the extremes around 1.45 could be the start of a long-term trend that takes USDCAD to 1.2000.
