Double Top vs. Rising Trendline: USD/CAD formed a double top last week, as you can see in the 4H chart. The double top looks like a price top that would suggest a period of bearish correction against the prevailing uptrend. However, with price unable to clearly break below a month-long rising trendline from July, the bullish trend is still in play.
The 4H RSI flirted going below 40, but it looks like it is still holding above this level, which means bullish momentum is still in play.
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Pennant, Bullish Continuation Scenario: Instead of looking at the USD/CAD’s price action structure in August as a double top, we can also look at it as a pennant pattern. That means, a break back above 1.09 and above the pennant resistance would be a bullish continuation signal, that first opens up the 1.0985 August high. Then, the 1.1053 high from April will be in sight.
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Bullish Bias: While the 4H RSI is struggling to hold above 40, the daily RSI has recently tagged 70, and thus is still bullish. The RSI is now neutral in the daily chart, so there is still room to the upside from a momentum perspective.
The daily chart also shows price tagging the 200- and 100-day SMAs and holding so far as support. This fact maintains a bullish bias.
Breakouts: At this point a break above 1.09 might start a bullish continuation, but a break below 1.0860 can extend the bearish correction scenario, but that should be limited to 1.08 for now because that’s where the 50-day SMA resides, and was a support pivot during the 7/27 consolidation.
If the bearish scenario prevails, we should also look at the daily RSI. If the RSI starts to hold above 40, be ready for a bullish attempt.
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