(Chart courtesy of FX Solutions' FX AccuCharts. Price on 1st pane, Slow Stochastics on 2nd pane; downtrend lines in red; Fibonacci retracement levels in grey; chart patterns in yellow.)

3/28/2008 – USD/CAD – It seems like flags and pennants are everywhere these days. But this comes as no surprise, as these consolidation patterns are among the most common formations found on currency charts. The long-term USD/CAD weekly chart, as shown, is no different. Entrenched in a long-term downtrend channel for many years, this key pair is currently in a major retracement from the bottom line of the parallel channel. This correction has taken the shape of a flag formation, as represented on the chart by the dotted yellow lines. And as breakouts of flags often continue in the direction of the flagpole, this flag is hinting at a possible retracement all the way back up to target strong resistance at the top line of the parallel downtrend channel. At the same time, however, as of this writing price has also bumped up against a secondary downtrend resistance line within the channel, as represented on the chart by the dotted red line. This line holds some significance, as it has been touched by price at least five times as resistance. So the question now is which technical factor holds more weight – the flag or the secondary downtrend resistance line. In the event of the flag continuation winning out with a breakout above both the flag itself and the secondary resistance line, further resistance to the upside clearly resides at the top of the parallel downtrend channel. If, on the other hand, the secondary resistance prevails with a bounce back down, major support to the downside clearly resides at the bottom of the channel.

James Chen

Chief Technical Analyst

FX Solutions

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