USD/CAD Signals Bullish Continuation with a Pennant Breakout

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USD/CAD Signals Bullish Continuation with a Pennant Breakout

The USD/CAD was bullish at the end of 2014 after a brief period of consolidation. The 1H chart shows a surge from around 1.5750 until 1.1842 during the turn of the year. Note that the 200-, 100-, and 50-hour SMAs was all clustered together but spread apart after the surge and are now in bullish alignment.

USD/CAD 1H Chart 1/6
usdcad 1h chart 1/6
(click to enlarge)

Breakout from Pennant: From 1.1842 USD/CAD started to consolidate, and eventually formed a pennant pattern as we can see in the 1H chart. As we got started with the 1/6 European session, the market pushed the pair above the pennant. Note that price is still above the moving averages and the 1H RSI is still above 40. These conditions show that bulls are still in charge.

Bullish Continuation: With the prevailing uptrend intact even in the 1H chart, the breakout is a bullish continuation signal for the short-term, with the 1.1810 common-high, and the 1.1842 spike-high in sight.

Correction Scenario: During the 1/6 session, if USD/CAD closes back below 1.1750, our bullish continuation outlook would be invalid, and we should anticipate further consolidation/correction. The next key support will likely be in the 1.1670-1.17 area, which contains the 2014-high and the 100-hour SMA.

The USD/CAD may be in a secular bull market (5 years or longer). It has been rallying since the 2011-low around 0.95 as we can see in the monthly chart.

USD/CAD Monthly Chart
usdcad monthly chart 1/6
(click to enlarge)

Long-term Outlook: When we look at the RSI , we can see that the reading has tagged 70 in 2009, and held above 40 for the most part despite a brief crack in 2011. With the monthly chart showing growth of bullish momentum, we can say that USD/CAD has been building a price bottom since 2008. If this is so, the 1.30 level could be in sight in this couple of years.

In the short-term however, we should be looking at 1.20 as a possible resistance, especially when the RSI readings in monthly, weekly, and daily charts are overbought.

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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.