Forex Technical Update

Previous: USD/CAD Forecast: Channel Break Signals Retest of Parity (9/19)



The Daily USD/CAD chart shows the market in a 5-day rally covering this entire week. Most of that came from Wednesday and Thursday. But after this 580-pip bull run from 0.9780 to 1.0361, some market participants could be thinking profit taking, heading in to the weekend. The daily chart shows that this rally has basically achieved wave equality of the August rally, roughly from 0.94 to 1.00 (600 pips). The RSI reading in the daily is above 70, which is a sign of bullish continuation, but for the very short-term suggests overstretched bullish momentum.

The weekly chart shows that this week's rally was a confirmation of a double bottom, as well as the upside break to a declining trendline that was initially a sideways break. The rally is almost at the double-bottom-breakout-target, which is close to 1.0380 (height of the bottom projected above the shared resistance). We also see the market cracking the 61.8% retracement level at 1.03, which could have been an area of resistance. The confluence of possible resistance and target projections did not reject the USD/CAD rally, but can slow down and flatten the rally. But more upside is in sight.

The fact that USD/CAD broke above 61.8% retracement at 1.03 suggests we have further upside to maybe reverse the entire bear run that started from 1.0850 in April 2010. The fact that the RSI in the weekly chart is surging above 60 is also a sign that the long-term bearish momentum is broken. Before getting to 1.0850, we also have resistance  factors at 1.0550, near 78.6% retracement and the 200-period simple moving average in the weekly chart.


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Fan Yang CMT
Chief Technical Strategist