Forming a Double Top: The USD/CAD started this week failing to break above last week’s high at 1.0986. Then it retreated during the 8/11 US session after Canadian Housing Starts data impressed, and the pair looks like it is developing a double top in the 4H chart.
Double Top Scenario: I am not biting but let’s entertain the double top scenario first. If we get a break below 1.09, I would still want to see a pullback fail to break above 1.0950 in order to shift my outlook to bearish even in the short-term. In this double top/bearish correction scenario, our first target could be the 1.0850 level, which is around the 38.2% retracement and the 100-period SMA in the 4H chart. Based on this double top scenario, my most aggressive bearish outlook would be limited to the 1.0760-1.0775 area, which contains the 61.8% retracement, and a previous resistance area.
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Bullish Bias: Even though I think there is a possibility of a short-term consolidation/bearish correction, I believe the USD/CAD is still bullish in the medium-term. I believe the soft jobs data seen last Friday for Canada is more important the resilient housing data we saw today.
With that bullish bias in mind, I would look at this double top attempt as an opportunity for many to buy on a dip. As price nears the 1.09 handle, and the 4H RSI dips to 40, I would anticipate buyers. If price then fails to break above 1.0950, I would start considering some further consolidation/correction to clear that 1.09 handle before buyers join the uptrend again.
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The next key resistance levels for the uptrend will be
1) 1.10: Psychological handle and a support/resistance pivot seen in April-May
2) 1.1053: April Highs.
Another look at Support Factors: Now returning to that double top scenario, we can see that a short-term bearish attempt would still be within the medium-term bullish outlook, especially if price can hold above 1.08, the 50-day SMA. We should also monitor for support around 1.0810-1.0825, which were teh lows in May-June.
So again, if there is a double top, we should monitor the 1.0850, then the 1.0810-25 area for support, but if price breaks below 1.08, we might have to shfit away from the bullish outlook, to a neutral-bearish one.
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