Sept. 17 (Bloomberg) -- A hammer chart pattern may drive the dollar to its highest level in more than a month against its Canadian counterpart if the greenback exceeds a key resistance level, according to Royal Bank of Canada.
A daily close for the Canadian currency above 97.28 cents per U.S. dollar would confirm a hammer pattern set Sept. 14, sending the loonie, as the currency is nicknamed, to resistance at 98.01 to 98.57, then to C$1.0002, RBC said today in a note to clients. The pattern was created after the U.S. dollar started Friday at 96.85, and then dropped to 96.33 before appreciating to 97.23. The formation is created on a candle chart when a currency falls, then rebounds to close above its opening price.
“They moved down into oversold territory,” George Davis, chief technical analyst for fixed income and currency strategy in Toronto at RBC, said in a telephone interview. “People were a little reluctant to aggressively push dollar-Canada below the 96.30s area. They weren’t really comfortable with short positions below that level with dollar-Canada being down that weak.”
A daily close for the dollar above $1.0083 may signal further strength against the loonie, Davis wrote. The company’s medium-term technical price target is for the Canadian dollar to strengthen to 95.75 per U.S. dollar, he said.
“With the overall trend in dollar-Canada being down, we think these shorter-term corrections are going to continue to attract selling interest,” Davis said. “Once valuations move to more neutral levels, we’ll see dollar-Canada push back towards the bottom end of its range once again.”
The U.S. dollar gained 0.4 percent to 97.54 Canadian cents at 3:12 p.m. in New York. One Canadian dollar buys $1.0250.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Resistance and support refer to areas on a graph where pre-established orders may be clustered.
To contact the reporter on this story: Joseph Ciolli in New York at email@example.com
To contact the editor responsible for this story: Dave Liedtka at firstname.lastname@example.org