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USD/CAD Technical Analysis: October Trendline Support Breaks

USD/CAD Technical Analysis: October Trendline Support Breaks

2015-11-24 21:33:00
Tyler Yell, CMT, Currency Strategist
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Talking Points:

-USD/CAD Technical Strategy: Waiting To Sell If Channel Support Breaks

-Looking to Bounce In WTI Crude Oil for Directional Cues

-US Dollar Currently Providing Support for USDCAD, Break below Support Opens USDCAD Downside

The US dollar continues to struggle within a corrective channel, which is letting CAD gain ground. We recently commented how the Canadian Dollar has been diverging from other commodity currencies like the Australian dollar as the leader so far for the month. This development of divergence is interesting as USDCAD has been unable to hold above 1.3400. Within 1.34/3500 was the price range with which USDCAD printed the year to date high. The year-to-date high was 1.3456. Because reversals have a the propensity to develop around the price range of an extreme day and the 2015 extreme day price range was 1.3370-1.3456, The recent turn has us on alert as US Oil bounces off support. I would add to this what makes this more interesting is what is happening with oil today after the Turkish downing of the Russian plane in addition to the Saudi Arabia comments yesterday that propped up oil prices. Given the positive correlation between Oil strength with CAD strength, these geopolitical developments align with us pulling off 1.3400 resistance on USDCAD and support on US Oil.

While we cannot confirm a top yet, there are a few things to look on the charts that could signal that we potentially have a turn. First, we can look to a turn in the oscillators as the daily RSI (5) may be soon breaking trendline support and we see a similar move on oscillators like the Daily Slow Stochastics. Additionally, price breaking below 1.3222, the first key level of support may align with the fundamental environment for Oil strength. The additional Intermarket environment that would align with a USDCAD breakdown would be further dollar weakness through current support at 12,130/12,208. Regarding resistance, we are currently below an equal wave move higher off of the October 15 low, which is around 1.3477 and the high of the current November high that fell just short but with an interesting shooting star Japanese candlestick pattern. The shooting star formation is a potential topping pattern so that we can look to a subsequent price support break alongside a stochastic breakdown

Wedge price support sits in the 1.3270/1.3222 zone. A break and close below this level could allow USDCAD to join rank with other USD/Commodity Currency pairs that have seen nice gains against the US Dollar. The first downside target is the November low of 1.3036, followed by the October low or 1.2831. Naturally, a price break into new year-to-day highs would put a bearish USD/CAD trader on pause as until the clear price support breaks because the risk of an aggressive move higher could be in store. There is a lot of support that is currently holding up price such as the 21-day moving average, presently at 1.3244. A break below this indicator could convince traders that the party is over in USDCAD for the time being. For now, the chart shows the significance of the price Channel (blue) drawn off October 9th,13th, & 15th pivots. If price breaks below channel support aligned with an affirmed breakout in US Oil would make the argument for a breakdown toward support levels on USDCAD.

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USD/CAD Technical Analysis: October Trendline Support Breaks

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