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USD/CAD Technical Analysis: Has The Bearish Wedge Proven True?

USD/CAD Technical Analysis: Has The Bearish Wedge Proven True?

Tyler Yell, CMT, Currency Strategist


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Talking Points:

  • USD/CAD Technical Strategy: Looking To Sell Rallies
  • RSI (5) Continue To Print Lower Highs Shows Bearish Momentum
  • 61.8% Fibonacci Resistance Of Recent Move Lower / Wedge Support Hold Price

USD/CAD is a prime candidate for recency bias. Recency bias is a cognitive limitation that causes traders to focus on the stories of last month to plan the trades of this week. The trend higher from 1.1920 to 1.3456 would understandably cause traders to favor a rise immediately into perpetuity. However, Technical Analysis could show that upside is rather limited, and the downside should be favored, especially if a few factors that drive USD/CAD begin to align.

The rising wedge pattern on the USD/CAD chart below continues to hold true. For now, the lower high at 1.3278 should be treated as resistance and a buy trade is increasingly risky below this level. The risk of buying comes from the typical breakdown of a rising wedge pattern, a topping pattern that signifies weakness over time and favors an aggressive reversal. The initial ~600 pips decline from the late September higher toward the mid-March highs may be a sign of things to come. Additionally, the move higher ran out of steam at the 61.8% Fibonacci resistance level of the initial leg down, which can indicate underlying weakness. Such Fibonacci levels acting as resistance is a popular observation in reversing markets before resuming in the direction of the impending larger trend. For now, we will need to wait to see if the 61.8% retracement holds and price breaks down below the recent lows of the March high near 1.2830.

A common occurrence of a big move in USD/CAD is a big move in either US Oil and/ or US Dollar. Both Oil & the USD are sitting near resistance, and their next large directional push will likely direct USD/CAD as well. Based on technical analysis of USD/CAD, the favorable view would be WTI US Oil higher, and US DOLLAR lower as USD/CAD breaks lower from the rising wedge. A daily close above 1.3278 would be needed to alter that view. T.Y.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.