USDCAD continues to trend higher and is moving above an ascending trend line connecting the lows on the 4-hour time frame. Price looks prime for another correction and the 50% level lines up with the trend line support at 1.2700.
The 100 SMA is still above the longer-term 200 SMA so the path of least resistance is to the upside, which means that the rally is more likely to continue than to reverse. Stochastic is on its way up to signal that bullish momentum is already in play.
A larger pullback could last until the 61.8% Fib or the 200 SMA, but if the rally is already resuming from here, a move towards the swing high at 1.2900 or higher could be underway.
In his testimony this week, BOC head Poloz warned that slack in the labor market could keep a lid on wage growth and overall inflation. He reiterated that policymakers are more careful about future rate hikes and that there are several uncertainties present. However, he also mentioned that the BOC would be comfortable with inflation overshooting its 2% target.
As for the dollar, roadblocks in tax reform such as the possibility of Senate imposing a one-year delay before implementing tax cuts have weighed on the currency. Congress is scheduled to vote on the proposal next week and there has been some opposition within the GOP, so nothing is set in stone yet.
Medium-tier data from the US came in stronger than expected on Tuesday but there are no reports due today, so the focus could remain on tax reform. There are also no reports due from Canada so the crude oil inventories data could push the Loonie around.