False Breakout: The USD/CAD has been consolidating in February after reaching a high near 1.28 in January. Last week, we had a false bullish breakout, and price retreated to the triangle’s base. Let’s take a look at the technical set up as the USD/CAD awaits another breakout from a small range.
Support Continues to Hold: The 4H chart shows the descending triangle and the breakout that stalled at 1.2650. When there is a false breakout, the support/resistance on the other side usually becomes vulnerable. This is especially the case if the false breakout was against the prevailing trend. But here, the false breakout was IN the direction of the prevailing trend.
The support in the 1.2360-1.24 area held. The 200-period SMA also acted as support. The 4H RSI held mostly above 40 after tagging 70, which shows maintenance of the bullish momentum (barely). In the case of USD/CAD, I would say that the false breakout last week has not made the market bearish, and it is poised to break to the upside again. But let’s not get ahead of ourselves and take a look at the 1H chart.
Awaiting Breakout from Small Range: In the 1H chart, we can see a small price range between 1.2448 and 1.2535. A break above 1.2535 should revive the bullish outlook, with the 1.2650 highs last week in sight .A break above that opens up the 1.28 area.
A break below 1.2448 however puts the pressure back towards the 1.2360-1.24 support area. If price falls below 1.2360, despite a prevailing uptrend, we should expect some short-term bearish correction, and a medium-term consolidation period, with downside risk towards 1.21 and 1.20.
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