Andy’s Technical Take Week of September 9th 2019

Although USD/CAD charted seven straight green candlesticks on the weekly timeframe recently, the pace of growth left many doubts about further appreciation. Only in August, the bulls had four failed attempts to break through round-figure static resistance at 1.3350. Traditionally, the market comprehends the lack of uptrend progress as a weakness. The plunge of more than 200 pips that we saw this past week was rather unsurprising. USD/CAD gave an attractive high for fresh short positions one day before the Bank of Canada’s meeting and rate decision, which played out as a fundamental trigger to crash the bullish formation on the weekly chart. The technical outlook suggests much lower rates for the pair and here is why.

I would highlight three key observations from the weekly chart below. First, USD/CAD could not come back to the ascending green channel of the uptrend started in June 2017. The resistance trendline connects the four highest weekly close rates, while the support trendline is just a parallel clone shifted to the bottom side. The pair breached the support trendline in June 2019, and it acts as the resistance since then. Second, the Fibonacci Retracement Levels were built connecting the lowest weekly close with the highest weekly close in the same period. As a result, we have the nearest 78.6% Fibo resistance at 1.3322, which was not breached by the bulls as well (meaning by weekly close rates, not whipsaws). Therefore, traders should expect the pair to test the 61.8% Fibo support at 1.3074. Third, the triple EMA had narrowed the distance between EMA21 and EMA144, while the moving curve with the shortest period headed south. That usually points to deeper bearish retracement at least. However, the bearish action was limited by 89-weeks Exponential Moving Average (1.31541), which should act as the nearest defensive barrier for the bulls. Once breached, USD/CAD would head to the next support of EMA144, which has been already tested two times in the last 11 months. Those suggestions make me expect the pair to trade in the range of 1.30395/30741 in the week ahead.

Since August 6th, USD/CAD had a serial bearish divergence on daily RSI (13) and CCI (21) according to the chart below. Although CCI dropped to extremely oversold level, the divergence did not play out yet as RSI has more room to go south. What’s more, Friday’s close rate is below the bottom line of the Bollinger Bands indicator (21), which is nothing but a bearish breakthrough signal, suggesting lower rates shortly. The two lowest daily close rates on July 12th (1.30286) and 18th (1.30270) point to the nearest target for bears. That support level comes in line with the previous assumption, providing an adjustment for the level to place take-profit orders. If the market would be so kind to provide another opportunity to enter at around 1.3200/20, I would gladly pull the trigger to add more volume to my short positions. It’s tough to predict what could happen next as the round-figure mark of 1.30000 looks solid so far, and we’ll need to analyse momentum during a possible test of that magnetic target. Nonetheless, a bargain of 370 pips (counting from my first entry point) promises an interesting and profitable Autumn this year.

Best wishes in the market this week traders!

This post is contributed by MyFxLab. MyFXLab provides daily technical analysis written by professional traders. The site was founded by former Goldman Sachs FX traders and executives from some of the world’s largest brokers.

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