After pause USDCAD will try to renew annual highs

The USDCAD currency pair has accelerated its movement within the medium-term uptrend in recent days. Quotes reached all growth targets, except the last one which is the maximum of the last year slightly below the level of 1.39. Right now, the bulls are hardly ready to climb to this top, especially given the overbought condition on the technical indicators. Nevertheless, after a short pause, an attempt to climb to the level of 1.39 will surely be made.

Another wave of strengthening of the U.S. dollar against the Canadian currency was promoted by yesterday's statistics on inflation. General indicator of price growth in Canada increased from 2.8% to 2.9%, which is in line with analysts' expectations. At the same time, core inflation measures were better than forecasts, continuing to get closer to the 2% target. Canada, unlike the U.S., has so far managed to avoid a noticeable acceleration in consumer price growth.

During his speech, Governor of the Bank of Canada Tiff Macklem positively assessed the inflation data for March. According to him, the national economy continues to move in the right direction. Macklem paid special attention to the core price growth, which shows a stable slowdown for several months in a row. This opens the possibility for easing monetary policy already at the next meeting of the regulator.

Market participants reevaluated the probability of the Bank of Canada key rate cut at the June 5 meeting from 44% to 55%. Doug Porter, chief economist at BMO Capital Markets, noted some deterioration in inflation compared to January and February, but it remains within expectations. Nathan Janzen from Royal Bank of Canada emphasizes the divergence in price growth dynamics between the U.S. and Canada. It makes sense for the Bank of Canada to cut a key rate in June, but the Fed is not ready to make such a move yet. This will support USDCAD growth.

Indicators RSI and Stochastic point to a rapid correction of USDCAD. Quotes may roll back to the level of 1.377, where buyers will start building up long positions again. Their main target is the level of 1.39.

The following trading strategy may be offered:

Buy USDCAD near the level of 1.377. Take profit – 1.39. Stop-loss – 1.37.