USDCAD just confirmed the potential reversal from its recent climb, as the pair created a double top pattern on its 4-hour chart. Price broke below the neckline support at 1.2400, confirming that a downtrend is underway.
However, stochastic is already indicating oversold conditions, which means that sellers are running out of steam. This could signify that the breakdown was a fake out and that another bounce up to the previous highs at 1.2550 could take place. RSI is also in the oversold area, hinting at a possible bounce.
The moving averages have made an upward crossover, with the short-term 100 SMA treading above the long-term 200 SMA, also suggesting the possibility of seeing further gains for the pair. If the downtrend carries on though, price could head lower by an additional 150 pips or the same height as the double top formation.
USDCAD Forex Fundamentals
Both the US and Canada recently printed stronger than expected jobs reports last week, allowing traders to speculate about a Fed rate hike in September and no rate cut from the BOC. The pickup in oil prices at the start of the week seems to have favored the Loonie over the Greenback though, as market watchers price in a potential rebound in the oil sector.
Event risks for this USDCAD setup include the release of the US retail sales report tomorrow. The headline figure is set to print a 1.1% gain while the core version of the report might show a 0.7% increase, with stronger than expected results likely to give the US dollar another strong boost. On the other hand, bleak figures might cast doubts on the Fed’s tightening timeline and lead to dollar weakness.
A speech by BOC Governor Poloz is lined up for Thursday also, and this might provide a catalyst for strong CAD moves. No other events are set from Canada, which suggests that the currency could still take its cue from oil price movements.
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