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USD/CAD Technical Analysis: Wedging Between Hard Support And 200-DMA

USD/CAD Technical Analysis: Wedging Between Hard Support And 200-DMA

Tyler Yell, CMT, Currency Strategist

Talking Points:

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USD/CAD has fallen away from most traders attention as its volatility has dropped alongside the small price variances in Crude Oil. Looking at supportive components of the USD/CAD currency pair, we’ve seen similar stability in the 2yr US/CA sovereign debt spread for most of 2017. The stability helps to show that there is not much happeningregarding expected monetary policy that is going to drive the currency pair higher or lower for now.

However, we can look at the chart to see that price on the Daily chart is sitting below the Ichimoku Cloud. Price below the cloud is a classic Bearish indicator alongside the lagging line (bright green) that is also below price and the cloud meaning the current price is below than the closing price from 26 periods or days ago.

Adding to the Ichimoku picture that favors further downside over a bullish reversal, we can see the price is sitting below the 200-DMA and above support at 1.300. While the 200-DMA has not acted as a stiff deterrent to price in one direction or another, we can see that the price below the 200-DMA also aligns with the momentum pictures as visualized with RSI(5) and the Andrew’s Pitchfork to complement what we see with Ichimoku.

The Andrew’s Pitchfork provides a bearish channel, and the top of the channel aligns with the Ichimoku Cloud. Both technical forms of price resistance come together at 38.2-61.8% retracement of late-January to February range at 1.3128/3227. A failure for the price to break above the channel and thus, the Cloud would continue to discourage long trades and favor a trend continuation lower. The momentum picture via RSI(5) appears to show a rising wedge. Rising wedges tend to be followed by aggressive down moves.

Because we trade price and not the RSI(5), we should await a break below 1.3000 followed by an RSI(5) breakdown before anticipating lower levels in USD/CAD. A daily close below 1.3000 could bring about further USD weakness as we’ve seen against other commodity currencies like the Australian Dollar and bring about a test to the late-summer pivots of 1.28157 and 1.27594. For now, my swing-bias favors a move to these levels.

A Bullish reversal, which would be validatedon the move above the Pitchfork & Cloud would turn focus to the late-January high of 1.33875. Such a move would likely bring more confusion than clarity as USD/CAD has been a choppy pair after bottoming in May.

What Did The Analysts Learn After Trading Of All 2016? Click Here To Find Out

D1 USD/CAD Chart: Trading Between Long-Term 1.3000 Support and 200-DMA at 1.3141

USD/CAD Technical Analysis: Wedging Between Hard Support And 200-DMA

Chart Created by Tyler Yell, CMT



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