USD/CAD looked like it might break lower last week as oil and gas prices turned higher and risk appetite improved on soft US CPI but today it has stormed back.
The rally invalidates what could have been a head-and-shoulders top in the pair targetting a move below 1.25.
The gain today puts the pair back into the middle of the range since mid-June. It's a strong rally but hasn't challenged 1.3000 and that's the key short-term level to watch.
Tilting the balance will be oil and the Iran nuclear deal and broad risk appetite. We're awaiting word on Iran imminently while the risk mood has been surprisingly perky after a bad start on China worries.
In the bigger picture, CAD and USD are vying for the top spot among major currencies this year and are neck-and-neck. Both economies are slowing but not nearly as quickly as Europe and Japan is losing its safe-haven status on its yield-curve control policy.
As time goes on, this trade will be more about the path of global growth. China's rate cut today is a small sign of a willingness to engage in stimulus but I fear it will get worse before it gets better.
