USD/CAD – Breakout Continuation Scenario and Projection

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USD/CAD - Breakout Continuation Scenario and Projection

USD/CAD was trading sideways from the end of January through mid-April after which it shifted to a bearish trend, breaking the multi-month range support that was in the 1.2350-1.24 area. Let’s follow up with this bearish breakout starting with the 1H chart.

USD/CAD 1H Chart 4/27
usdcad 1h chart 4/27
(click to enlarge)

As we begin the 4/27 Asian session, the 1H chart shows a market that has been consolidating above 1.2085 since 4/17. A short squeeze reached a peak of 1.2305 before retreating. We can say that price regained the bearish posture by late last week as USD/CAD fell below a common support in the 1.2178-1.2203 area and as the RSI dipped back below 30. Also note that the 200-, 100-, and 50-hour simple moving averages are back in bearish alignment and are sloping down with price below all three.

After a rebound from 1.21, price respected the 1.2178-1.2203 support as resistance, and the 1H RSI held under 60. These are signs that the bears are staying in control even in the very short-term. Indeed, the 4H chart shows that bears remain clearly in control in the short-term.

USD/CAD 4H Chart 4/27
usdcad 4h chart 4/27
(click to enlarge)

The 200-, 100-, and 50-period SMAs in the 4H chart are sloping down and in bearish alignment with price trading under them. The RSI clearly held under 60. This last bullish attempt from 1.2085 to 1.2305 failed to even test the 1.2350-1.24 multi-month support area. It looks like we should expect another new low below 1.2085 this week.

The 1.20 psychological level could be next. If we take the range of the broken consolidation and project it to the downside from the broken support, the range breakout target would be around 1.1950. (1.2830-1.2380 = 450 pips; 1.24 – 450 pips = 1.1950). Note that this is actually a conservative target with the aggressive target closer to 1.1850.

USD/CAD Daily Chart 4/27
usdcad daily chart 4/27
(click to enlarge)

The point is that the bearish projection should be limited to an area we saw price consolidate in during mid-January, roughly between 1.18 and 1.20.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.