Bullish trend reversal triggered in Canadian dollar

Last week the USD/CAD currency pair triggered a bullish trend reversal as it rose above the prior week’s high and closed above it on a weekly basis. That’s the first time in 13 weeks that the pair closed above the prior week’s high. At the same time the 14-period Relative Strength Index (RSI) turned up from its most oversold position since October 2007 and crossed above the 30 line. Further, a double bottom breakout was triggered on the 4-hour chart (see below). This bullish price behavior follows support hit two weeks ago at 1.2412. That’s within the area of support from early-May 2016.

USDCAD

The rally follows a steady 12-week decline off the 1.3795 peak. That peak completed a 61.8 per cent retracement of the prior decline coming down from the January 2016 high, and marked the high of a 12-month ascending trend channel. A breakdown of the trend channel occurred six weeks ago with a drop below the uptrend line at the lower portion of the channel that was confirmed by a drop below the two week low at 1.3163.

Although the larger pattern is looking bearish, as we have a lower swing high from May and the breakdown of the ascending channel could be the first signal for a continuation of a developing downtrend, the odds now favor a tradeable rally off the recent low.

USDCAD

Potential targets based on previous price structure can be seen in the enclosed 4-hour chart above. The initial double bottom could hold and lead to higher prices or a larger bottoming pattern may develop. Either way, given how price historically behaves (support becomes resistance, and resistance becomes support) we should see a move back towards the uptrend line at the bottom of the channel as it’s tested as resistance.

Summary

  • USD/CAD looks to have found intermediate-term support at 1.2412 two weeks ago.
  • Bullish trend reversal confirmed last week on weekly close above prior week’s high. First time this has happened in 13 weeks.
  • Counter-trend rally very likely to continue as it follows a steady 12-week decline.
  • Good upside potential as resistance of rising trend line is quite a ways higher and key potential resistance areas are from roughly 120 pips to 700 pips away.
  • Watch for how retracements develop for keys to underlying strength as the new “potential” uptrend develops.

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Bruce Powers, CMT
About the Author
Bruce Powers, CMT, has over 20 years experience in the financial markets. Previously, he was President at WideVision, a Dubai based FinTech and IT services company, which published MarketsToday.net/en/, and where he also was Chief Technical Analyst. For the past eight years Bruce has written a weekly column on the UAE stock markets titled \'On the Line\' for the Gulf News newspaper, and has appeared numerous times as a guest on TV business shows. Bruce is a Chartered Market Technician (CMT) and until recently served as Co-Chair of the CMT Association Dubai chapter, which he Co-founded.

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