Converging Triangle on USD/CAD Daily Chart

07/29/2010 12:01 am EST

Focus: FOREX

James Chen

Chief Technical Strategist, FX Solutions

Price action on USD/CAD (a daily chart of which is shown), which has generally been entrenched in an overall sideways consolidation since late 2009, has now formed a large converging triangle pattern consolidation

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(Price on first pane, Slow Stochastics on second pane; horizontal support/resistance levels in yellow; uptrend lines in green; downtrend lines in red; chart patterns in white; 50-period simple moving average in light blue.)

This pattern suggests a progressive tightening of volatility in the pair over the course of the past several months, which could potentially result in a substantial breakout on high volatility. As there is little in the way of a strongly discernible trend on USD/CAD at the moment, the direction of this potential breakout does not currently have a clear bias.

Currently, as of Wednesday (July 28), price is near the lower portion of the triangle, just under the 1.0400 support/resistance level. A break to the downside below this triangle should meet immediate downside support in the 1.0200 price region, followed by 1.0100 on further bearish momentum. Conversely, a breakout to the upside above the upper border of the triangle could initially target further upside resistance in the 1.0675 price region.

By James Chen chief technical strategist,

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