Interpreting the Double Top in USD/CAD

11/25/2008 12:44 pm EST

Focus: FOREX

Chart
(Price on 1st pane, Slow Stochastics on 2nd pane; uptrend lines in green; horizontal support/resistance levels in yellow; 200-period simple moving average in light blue.)

After having formed a tentative double-top high around the 1.3000 region, price action on the USD/CAD daily chart, as shown, has retraced considerably, all the way back to the steep uptrend support line (in green) that represents the most recent bullish run. Momentum after the peak of this run has turned down sharply from extremely overbought.

A technical trigger for further bearishness would be a breakdown and close below the current uptrend support line, which could suggest a further push towards the 1.2000 support region. Of course, the current, tentative double top would not be confirmed unless price actually dropped below the intervening trough. In any event, there is currently a bearish bias to this pair that could manifest itself much further if there is a strong break and close below the current steep uptrend support line.

By James Chen, Chief Technical Analyst, FX Solutions

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