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USD/CAD Technical Outlook: Retracement or Reversal?

USD/CAD Technical Outlook: Retracement or Reversal?

Paul Robinson, Strategist

USD/CAD Technical Outlook

  • USD/CAD explosion at first looked sustainable
  • The pullback we are seeing brings serious doubt on a continuation trade

USD/CAD Technical Outlook: Retracement or Reversal?

USD/CAD shot out of a cannon last week after putting in an extremely tight period of trading. The rally at first glance looked good for at least a continuation trade after a period of digestion, but that has been brought into serious question with the sharp retracement we have seen.

Yesterday, a minor reversal developed that could help floor the decline, but if we see price sink much further, then the larger than expected pullback has likely morphed into what will be a full reversal and potentially a leg towards a new cycle low.

The trend-line dating to the peak of a bounce in December has gained quite a bit of meaning during this process. If USD/CAD can solidify here and turn higher, the trend-line and the recent high at 12486 becomes a pair of thresholds to watch. It seems a period of digestion for now is the best case scenario for a bullish outlook.

On the downside, if a slide continues below yesterday’s low at 12252, then the top of the range it broke out of will become the next area of support at 12142. At that juncture a bounce may develop, but the risk is that a new cycle low below 12000 will unfold.

For now, in wait-and-see mode. If USD/CAD can firm up here then perhaps the top-side is still in play, but if it doesn’t then the rally out of the Fed meeting is likely to reverse and possibly worse.

USD/CAD Daily Chart

usd/cad daily chart

USD/CAD Chart by TradingView

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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.