USD/CAD Challenges a Wedge Pattern for a Bullish Outlook

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USD/CAD Challenges a Wedge Pattern for a Bullish Outlook

The USD/CAD has been consolidating since the middle of October after a rally to the high on the year at 1.1385. The 4H chart shows this consolidation in the form of a falling wedge pattern.

USD/CAD 4H Chart 10/30
usdcad 4h chart 10/30

(click to enlarge)

This week, the USD/CAD continued to slide but found support around 1.1125 and rallied to about 1.1225 after the FOMC announced the end to quantitative easing (QE), a stimulus campaign that has added $1.66 trillion to the bank’s balance sheet.

The removal of QE is another step toward a rate hike, which is projected to be in the middle of 2015, and the FOMC did not change its forward guidance. The market revived USD-strength after the announcement.

The USD/CAD rallied 100 pips, which is not that dramatic. In fact price is still stuck in the middle of the key SMAs and the wedge pattern seen in the 4H chart, unable to break higher during the 10/30 session.

Still, price is threatening the wedge resistance. A break above 1.1225 would clear above the wedge pattern and above the cluster of SMAs. Then, we should look to see if price can hold above 1.12. Ability to do so would add to the case of a bullish continuation. A break below 1.1160 however would signal a failure of bullish continuation and suggest further consolidation/bearish correction.

In the bullish continuation scenario, USD/CAD should be pressured to test and break above the current high at 1.1385. The daily chart below shows that if price instead continues to consolidate, we should still look for support and buyers around the 1.1050 area which has a rising trendline just below it. A break below 1.10 however would signal a reversal, especially if the daily RSI falls back below 40, which would signal a loss of the bullish momentum that has been building since July.

USD/CAD Daily Chart 10/30
usdcad daily chart 10/30

(click to enalrge)

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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.