Tyler Yell, of DailyFX.com takes a technical look at last week's price action for this currency pair, outlines how its 55-day moving average is now under threat, and highlights how he is now waiting for its downward corrective channel to play out.
The Canadian dollar remained within its falling corrective channel and saw the lowest levels since Mid-August last week. USD/CAD continued its consolidation sideways after the USD sold-off on the Federal Reserve’s dovish comments after holding rates near 0%. Momentum is hitting levels not seen since the turn higher in late June and longer-term technical studies like Ichimoku Cloud still expect support to hold on a longer-term basis. Friday saw a bullish reversal off median line support, keeping the bull’s hopes alive for a resumption of the larger uptrend.
Those long USD/CAD seemed to have unwound their position after a disappointing failure around the 34-mva. However, the hold of 1.2950 appears to be instilling confidence as Friday is closing on 2-day highs, a very bullish sign. Additionally, the post-FOMC sell-off did not see a break of the 1.3000 level, which has psychological importance. Lastly, the turn lower Friday morning around 1.3012 was off the 78.6% Fibonacci retracement level of the August price range that we have since traveled through.
Friday morning’s rebound has endorsed the larger call for a move higher however, more evidence is warranted after the near-300 pip drop from late last week. A daily close above 1.3200 with a stop at the recent low of 1.3012 targeting 1.3500 would be the preferred swing approach. This would align with a ~1:1.5 risk: reward and stay aligned with the larger trend after resistance had broken. The continued retreat in the correlated crude oil markets would further enforce the long set-up above 1.2950 on a weekly close basis.
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By Tyler Yell, Trading Instructor, DailyFX.com
