USDCAD is forming a head and shoulders forex chart pattern on its 4-hour forex time frame, indicating that a reversal from the previous uptrend might take place. For now, price is still testing the neckline of the forex chart pattern near the 1.0950 minor psychological support area.
Stochastic is moving up from the oversold zone, suggesting that a bounce might take place. MACD is giving the same signal, which means that sellers aren’t ready to push USDCAD down for now.
However, a break below the neckline of the head and shoulders forex chart pattern might mean a 150-pip selloff, which is the same height as the chart formation. This could take price down to the 1.0800 major psychological support zone.
Forex Chart Pattern Breakout
Shorting below the 1.0950 level and aiming for 1.0800 with a tight stop around 1.1000 could yield a high return on risk for a short-term trade. Event risks for this trade include Canadian CPI and wholesale sales releases in today’s New York trading session.
Strong inflation reports might lead to a downside break below the USDCAD forex chart pattern and lead to a short-term reversal. However, sentiment has strongly favored the US dollar for the time being, as the recent FOMC statement revealed that the Fed is considering exit strategies. Canadian data, on the other hand, has mostly surprised to the downside and hinted a continued slowdown in their economy.
Canada has been known to benefit from US developments though, which could keep the Loonie supported. Another factor that could boost the Canadian dollar and lead to a forex chart pattern downside break is the potential surge in oil prices. Profit-taking ahead of the weekend might also be in support of the Loonie, as traders liquidate their long dollar holdings prior to the G20 Summit and the release of the Scottish referendum results.
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