Technical Sentiment: Neutral
Key Takeaways
An overextended USD rally is showing increasing signs of exhaustion that may lead to a larger correction in the coming days and weeks.
Technical Analysis
USD/CAD formed a perfect range was formed last week, with price boxed in tightly between the support at 1.0902 and the resistance at 1.0983/85. Each level now has two tests and subsequent rejections, making the next touch a very likely break-out opportunity.
The double top chart pattern, more than anything else, indicates a major weakness within the 5-week uptrend. Stochastic is located in overbought territory on the Daily chart, adding value to this view since it suggests a temporary top should form in this area in order to allow a bearish correction.
Free Reports:
While price remains stuck between 1.0902 and 1.0983 it is important to first observe how it will react around 1.0930 (50 Simple Moving Average on the 4H time frame). USD/CAD has shown respect for this SMA line in the past, as a consequence a break or bounce should indicate the overall direction before the range itself breaks.
A bearish break below 1.0902 will invalidate USD/CAD’s recent structure of Higher Lows and take out a cluster of stop losses accumulated in this area. In this case we expect a rapid sell-off to commence. An immediate target is located around 1.0853/76, however the main area of interest will be the price pivot zone at 1.0820.
A bullish bounce starting from the 4H 50 SMA followed by a rally above 1.0985 will invalidate any bearish scenarios and mark the return of buyers, with interest extending as high as 1.1026 and 1.1052.
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Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets
