USD/CAD Technical Background
This Forex pair is a challenging one to analyse technically. Although as is typical with USD pairs, it does not tend to slip and slide, it is prone to unpredictable pullbacks and bounces. The CAD is unusual amongst major currencies in that it is so overwhelmingly linked to a single foreign currency (the USD), as well as being strongly correlated to the price of crude oil.
For these reasons, I believe it is best to take a long-term view and to trade in that direction. This pair has shown a propensity to trend. Like most USD pairs, engulfing reversal candlesticks and pin bars can be nicely indicative of supply and demand zones in the USD/CAD market, so they are useful technical tools.
USD/CAD Analysis
The monthly chart shows that this pair has been in a primarily upwards trend for at least the past two years, and arguably the last three years. The bullish moves have been sharper and more pronounced than any falls. The pair recently made a five-year high.
There is a clear major support zone just above the 1.06 level, up to about 1.0650. The broken high of a recent spinning top is nicely confluent with the very round level of 1.10, as well as another recent monthly high, and this is also likely to provide future support. Established overhead resistance is less clear and in any case above 1.15 which is likely to prove to be a key psychological level.
An examination of the weekly chart yields a few interesting features:
1. The previous seven weeks have each printed higher a low.
2. The supportive trend lines have been steepening bullishly. The first break might provide an interesting short opportunity.
3. Since the current upwards swing began at the end of last June, the few bearish engulfing weeks that have occurred (numbered numerically in the chart below) each have intact lows.
4. We can add another flipped supportive zone at the lows and highs of recent weeks, running from approximately 1.1070 to 1.11.
Turning finally to the daily chart, we can add another flipped supportive zone where daily highs turned to lows from 1.1210 to 1.1221. We can also add additional steepening bullish trend lines which demonstrate how the upwards move increased in intensity before falling off with consecutive long upper wicks above 1.1350.
Perhaps, more importantly, the bearish trend line which we can draw from the tops of the upper wicks suggests we are at the crucial end of a consolidating triangle formation, and about to see a breakout in one direction or the other. It should be noted there is another lower bullish trend line some way below us.
Trade Opportunities
A move down is likely to meet a confluence of a demand level and a supportive trend line in the zone from 1.1210 to 1.1221. This could provide a good long trade opportunity.
Alternatively, a break above the bearish trend line followed a bounce upwards from a retest might provide a good long opportunity in very bullish conditions.
Shorts might be taken conservatively following a break below 1.1210, or more aggressively following a break of the steepest bullish trend line.
Adam is the Chief Instructor at fxacademy.com and trades forex on his own account. He has worked in financial markets for over 12 years, including six years with Merrill Lynch.
