USD/CAD Trading at a Key Trendline Resistance

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USD/CAD Trading at a Key Trendline Resistance

USD/CAD has been in a downtrend since reaching 1.1278, which remains the high on the year. In July, the pair found support at 1.0620 and has been consolidating.

USD/CAD Daily Chart 7/23usdcad 7/23 daily chart

(click to enlarge)

When you look at the daily chart, you can see that the downtrend is still intact, but the recent consolidation has brought USD/CAD up to 1.0794, where it tested a falling trendline and held below it. Price has then traded sideways in the past week, keeping the bearish trend intact.

The RSI also held below 60 after tagging 30, a sign that the bearish momentum is maintained.

Note that price also came back up to the 200-day SMA. After the cross under it, respect of the 200-day SMA as resistance could be a strong bearish signal – chartists call this a slingshot.

Let’s take a look at the 4H chart:

usdcad 4h chart 7/23

(click to enlarge)

We see that price has been in a descending triangle in the past week. There is some initial bullish momentum, but price has stalled under the 200-period SMA. This puts USD/CAD at the crossroad. Here are a couple of scenarios:

1) Price breaks below 1.0690, and the 4H RSI breaks below 40. The RSI would reflect loss of bullish momentum, and price should expose the 1.0620 low. Because this scenario is in-line with the prevailing trend, there is downside risk beyond 1.0620, toward a support pivot at 1.0560, established in Dec. 2013.

2) Price pushes above triangle, and 1.08: A break above the triangle is not enough to signal a bullish outlook, unless it can be followed by a break above 1.08. The RSI would have held above 40, which reflects maintenance of bullish momentum, so we should have upside risk to at least 1.0871, which is the 38.2% retracement. The 50% retracement is at 1.0950. The 1.0950-1.0960(resistance pivot) area is a viable bullish correction target. However, we should probably wait for further bullish confirmation before anticipating a bullish correction beyond the 38.2% retracement around 1.0871.

The fundamental docket is relatively light the rest of the week, and all of the key ones will be from the US:

Thursday:
US Jobless Claims
Manufacturing PMI
New Home Sales

Friday:
US Durable Goods

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.