Sell-off Bringing Meaningful Support into Play

Sell-off Bringing Meaningful Support into Play

USD/CAD Technical Outlook

  • USD/CAD falling from bearish head-and-shoulders pattern
  • Two thresholds of support nearby, watch price reaction upon test

USD/CAD Technical Outlook: Sell-off Bringing Meaningful Support into Play

The last time we looked at USD/CAD we were looking at the bounce to fail and possibly trigger a head-and-shoulders pattern. So far this is playing out, which has meaningful support just below coming into play.

The first level of support comes via the 200-day moving average, currently at 12498, which could spark buying interest. But the line to watch not far below there is the trend-line from June. A decline through the 200-day and tagging of trend support could be enough to induce a bounce, perhaps more.

It will depend on the price action and how emphatically buyers step up, if they do at all, as to whether the outlook should turn more bullish than just a corrective bounce. A sharp reversal may indicate that the head-and-shoulders pattern will have a truncated move and not reach its full potential.

By full potential I mean hitting its measured move target based on the height of the pattern, which would indicate a decline to around 12300. Down there also happens to be the October low at 12288. But that is a good distance and breaking of meaningful support away.

For now, existing shorts may want to keep running with the decline and see how price behaves at support. A slice through is possible and could extend existing trades that are in the money. A turnaround may warrant tightening up stops to protect gains.

Would-be longs are at odds with current momentum, but again if that momentum swiftly changes then perhaps it could put the ball back in the court of longs.

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

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