On its weekly time frame, USDCAD formed a doji candlestick right on the area of interest at 1.2450 to 1.2500. This could be a sign that the recent correction is about to turn and that the pair is gearing up for a long-term selloff.
Stochastic is still moving up on the weekly chart, suggesting that a few more gains could be possible before sellers take over and push the pair back to its previous lows around 1.2000. Sustained bearish momentum could lead to a downside break of the nearby support area.
Zooming in to the 4-hour forex chart of USDCAD shows that the pair has also formed a reversal chart pattern. A double top formation can be seen at the resistance area, with price testing the neckline at 1.2375 to 1.2400.
A break below the neckline support would confirm the downtrend, which might last by at least 200 pips or the same height as the chart pattern. This suggests that the next potential support area could be around the 1.2150 mark.
Stochastic is pointing down on the 4-hour chart, confirming that buyers are getting exhausted and that sellers might take over. However, if the neckline keeps losses in check for the time being, another bounce back to the nearby resistance at 1.2550 might be possible.
Both the US and Canada printed better than expected employment reports for May, also suggesting the possibility of long-term consolidation. The US economy added 280K jobs during the month while Canada stepped up hiring by 58.9K. This could keep both the Fed and the Bank of Canada on a relatively hawkish stance, although the former is likely to start tightening monetary policy first.
Of course, much still hinges on the outcome of the US retail sales report, which could show whether or not the economy recovered from the recent slump in growth in spending. If so, the long-term uptrend on USDCAD could resume.
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