Canadian Dollar Technical Analysis: USD/CAD Sinks After Failed Breakout

Canadian Dollar, USD/CAD Talking Points:

• USD/CAD set a fresh monthly low to finish last week, with price pushing below key support at the Fibonacci level plotted at 1.3652.
• The question at this point is whether the pair is headed towards longer-term mean reversion. As looked at last month, USD/CAD attempted to break out from a long-term symmetrical triangle pattern but didn’t get very far as resistance held at 1.3900.
• I’ll be discussing these themes in-depth in the weekly webinar on Tuesday. It’s free for all to register: Click here to register.

It’s been a dramatic past month and a half for USD/CAD, which further illustrates some of the USD dynamics that have been showing across markets.

Coming into the month of October, the USD had a full head of steam as a bullish trend had driven for 11 consecutive weeks. USD/CAD showed this theme quite well, as the pair had made a fast run at the resistance side of a symmetrical triangle pattern that had been building for the past three years.

Bulls took a shot and tried to push a breakout from the formation in early-October. They didn’t get very far, however, and after a single daily close above the trendline, prices snapped back (that high is shown with the red rectangle below). The retracement from that found support at 1.3575, after which bulls went back for another resistance test and this time, they were able to drive all the way into a longer-term zone of interest that runs from 1.3850-1.3900. That test lasted through the end of October and into the FOMC rate decision on November 1^st.

That morning, USD/CAD tagged the very top of that zone at 1.3900 before prices stalled; and as the USD started to go into reverse after that rate decision, so did USD/CAD.

USD/CAD Daily Price Chart

USD/CAD 1.3652

This price has been in-play practically all year on USD/CAD, but in various ways. This is the 61.8% Fibonacci retracement of the 2020-2021 major move and this was resistance in February, support in March; then back in as resistance in April and May before coming back as resistance in September. There was quite a bit of stall here in October and there were even some weekly doji bars that built with bodies right on that level; the indecision of which further reinforces the importance of this price on a longer-term, bigger picture basis.

It soon came back in to hold the lows after bulls failed to further the breakout, and for the past four weeks this had been a sticking point of support… until last Friday.

USD/CAD Weekly Price Chart

 Chart prepared by James Stanley, USD/CAD on Tradingview

USD/CAD Shorter-Term

Last week was the first weekly close below 1.3652 since September, before the breakout from the longer-term triangle had taken hold. And from early-week price action, markets may not yet be done with 1.3652 as this price has come back in as shorter-term resistance to begin this week.

There’s also been a show of higher lows, which sets up a possible short-term counter-trend scenario. At the core of the setup is the question as to whether 1.3652 will hold lower-high resistance. If it doesn’t, and if bulls can press to force a breakout and a push back-above the 1.3652 level, there’s follow-through resistance potential at 1.3691 and then 1.3711. Above that, the 1.3750 level looms large.

For support, there’s a nearby zone that’s in-play as of this writing, and it spans from 1.3623 up to 1.3629. If sellers can push below that the swing low at 1.3694 is exposed and the 1.3575 level is just below that. If bears can elicit a drive below that, whether it’s to nullify the ascending triangle or whether it’s a matter that comes back into the picture after a test at 1.3690 or 1.3711, the 1.3500 level looms large as a long-term support level of note.

USD/CAD Four-Hour Price Chart

--- written by James Stanley, Senior Strategist