USD/CAD in a Double Top Attempt

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USD/CAD in a Double Top Attempt

Forming a Double Top: The USD/CAD started this week failing to break above last week’s high at 1.0986. Then it retreated during the 8/11 US session after Canadian Housing Starts data impressed, and the pair looks like it is developing a double top in the 4H chart.

Double Top Scenario: I am not biting but let’s entertain the double top scenario first. If we get a break below 1.09, I would still want to see a pullback fail to break above 1.0950 in order to shift my outlook to bearish even in the short-term. In this double top/bearish correction scenario, our first target could be the 1.0850 level, which is around the 38.2% retracement and the 100-period SMA in the 4H chart. Based on this double top scenario, my most aggressive bearish outlook would be limited to the 1.0760-1.0775 area, which contains the 61.8% retracement, and a previous resistance area.

USD/CAD 4H Chart
usdcad 8/11 4h chart

(click to enlarge)

Bullish Bias: Even though I think there is a possibility of a short-term consolidation/bearish correction, I believe the USD/CAD is still bullish in the medium-term. I believe the soft jobs data seen last Friday for Canada is more important the resilient housing data we saw today.

With that bullish bias in mind, I would look at this double top attempt as an opportunity for many to buy on a dip. As price nears the 1.09 handle, and the 4H RSI dips to 40, I would anticipate buyers. If price then fails to break above 1.0950, I would start considering some further consolidation/correction to clear that 1.09 handle before buyers join the uptrend again.

USD/CAD Daily Chart 8/11
usdcad 8/11 daily chart

(click to enlarge)

The next key resistance levels for the uptrend will be
1) 1.10: Psychological handle and a support/resistance pivot seen in April-May
2) 1.1053: April Highs.

Another look at Support Factors: Now returning to that double top scenario, we can see that a short-term bearish attempt would still be within the medium-term bullish outlook, especially if price can hold above 1.08, the 50-day SMA. We should also monitor for support around 1.0810-1.0825, which were teh lows in May-June.

So again, if there is a double top, we should monitor the 1.0850, then the 1.0810-25 area for support, but if price breaks below 1.08, we might have to shfit away from the bullish outlook, to a neutral-bearish one.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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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.