USD/CAD in a Bullish Continuation Breakout

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USD/CAD in a Bullish Continuation Breakout

The USD/CAD has been consolidating since mid-December after making a 2014-high at 1.1673. It held this high through the rest of the month/year, and was consolidating between that high and the 1.1560 level.

USD/CAD 4H Chart 1/2
usdcad 4h chart 1/2
(click to enlarge)

Bullish Breakout: As we begin the first normal, full trading day of 2015, we are seeing the USD rally across the board, and the USD/CAD push above 1.1673. After a 2-week consolidation, this breakout signals bullish continuation. The width of the range was about 110 pips. If we project 110 pips higher, we have a breakout target of around 1.1780-90.

Anticipating a Pullback: Now, if there is a pullback, and the market is still in a bullish continuation mode, we should see support in the 1.1625-1.1650 area. A break below 1.16 would likely invalidate the bullish signal, and may in turn suggest that the failed bullish attempt was a sign of exhaustion, which then suggests bearish correction.

When we turn to the monthly chart, we can see that price has been bullish since 2011. Note that price has now cleared the 61.8% retracement level at 1.1666.

USD/CAD Monthly Chart
usdcad monthly chart 1/2
(click to enlarge)

There is a long-term prospect of a secular bull market back to the 1.3060 highs from 2008-2009. Before that, there is a support/resistance pivot area between 1.1875 (2007-high) to 1.19, which also captures some of those support levels during late-2008 to early-2009.

Now, the USD/CAD’s rally has been mostly a USD-story. You can also argue that falling oil prices has also been a drag to the CAD. When we look at EUR/CAD we can see the pair has been essentially neutral and choppy since September. The BoC is definitely not as dovish as the ECB, and the EUR/CAD should be bearish. But we did start to see oil prices breaking key support levels in Sept-Oct, which led to some extra drag on the loonie. In conclusion, the USD/CAD should remain bullish as long as oil prices are falling. When oil prices stabilize, we can expect a meaningful period of consolidation/bearish correction.

EUR/CAD Daily Chart 1/2
eurcad daily chart 1/2
(click to enlarge)

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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.