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Canadian Dollar – USD/CAD May Be on the Verge of a Major Break

Canadian Dollar – USD/CAD May Be on the Verge of a Major Break

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Canadian Dollar Techical Highlights

  • USD/CAD longer-term chart could make meaningful break
  • This could happen soon with key levels/lines nearby

The Canadian Dollar may soon be on the cusp of a major rally if USD/CAD takes out the 13000 level. To give a little backdrop as to why, we must first look at the weekly chart. The high in January 2016 could turn out to be the 3rd peak of a’3-2’ pattern – a formation marked by three lower-highs and two lower-lows. This sequence of weakening price behavior over time can lead to sizable declines (or rallies if reversed).

But what is perhaps more interesting, is that there is another one of these sequences developing since the December high, and with price creeping under the 2012 trend-line things are quickly turning towards a resolution of the bearish price sequence.

The 2012 trend-line has been breached already, but to confirm the break a drop below 13000 should do the trick. This will also constitute a lower-low in the '3-2' sequence that has been developing throughout the year, and should act as a catalyst for USD/CAD to start accelerating lower with all important support levels giving way.

But it needs to be stressed, without a break of the 13000-low created in July (13016 to be exact), there isn’t reason to get too geared up on shorts. USD/CAD could hang on and turn the 2012 trend-line bust into a false one, so from where I sit waiting for confirmation here is viewed as crucial.

In the event of a breakdown of the shorter-term pattern, we could see a large sell-off unfold similar to the declines seen in 2016 and 2017. If this were to be the case that would one day put USD/CAD below 12000. But before getting to that point there are weekly levels to watch (see chart) every 2-300 pips apart from 13000 down to the September 2017 low.

From a tactical standpoint, right here it is hard to be a seller with price a bit extended and support nearby, and it is hard to be a buyer with the techs just not looking too healthy. As a shorter-term swing-trader, should the larger set-up outlined trigger as described, there are likely to be a few good-looking short set-ups to grab a hold of for a while to come.

Trading Forecasts and Educational Guides for traders of all experience levels can be found on the DailyFX Trading Guides page.

USD/CAD Weekly Chart (‘3-2’ pattern, 2012 trend-line breaking)

USD/CAD Weekly Chart ('3-2' pattern, 2012 trend-line breaking)

USD/CAD Charts by TradingView

USD/CAD Daily Chart (13000 level important)

USD/CAD Daily Chart (13000 level important)

***Updates will be provided on these ideas and others in the trading/technical outlook webinars held at 930 GMT on Tuesday and Friday. If you are looking for ideas and feedback on how to improve your overall approach to trading, join me on Thursday each week for the Becoming a Better Trader webinar series.

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

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