The greenback dropped versus most of its peers last week. The U.S. dollar index – which measures the greenback’s strength versus the volume-weighted basket of six major currencies declined -1.21% to a 10-week low, charting the largest weekly loss since mid-June this year. The Japanese yen was the only exception as the safe-haven currency reflected overall risk-on sentiment in the global financial market. The Canadian dollar underperformed the rest of the currency pairs as USD/CAD slid only -0.56%, failing to test 1.3100 supportive handle. I will focus on the Loonie this week, trying to figure out the possible pace of the recent trend, as well as assess potential technical targets for the near future.
As always, I start by analyzing charts from the largest timeframe. Before adding any technical indicator, I decided to draw a couple of lines on the weekly chart below. Let me explain what I did here.
First, the green descending channel’s resistance was built by connecting two highest weekly close rates noted in January 2016 and May 2017. The support trendline of that channel is nothing but a parallel clone of the resistance trendline shifted to the lowest weekly close price in April 2016. Second, the blue ascending channel’s support trendline was built by connecting lows in January 2018 and January 2019. The blue resistance was built in the same way as the green one.
What I see here is that two former channels cross each other at around 1.2840 (green arrow). What’s more, that horizontal static level used to work as resistance or support many times in the past. And I truly believe that that’s the real support for the current downtrend, not the psychological round-figure level of 1.3000.
I also drew two additional support lines, which could hold the downtrend in the week ahead. The green dotted lines connect two recent lowest close rates and it comes at around 1.3065 for the next candlestick. The red support connects lowest close prices in September 2017 and January 2018, and it is placed at around 1.3024 for this upcoming week. By the way, the lowest weekly close this year is 1.3028, and that’s not a coincidence.
So my point is that USD/CAD is approaching a crucial technical support range according to the graphical analysis. Now let’s see what the technical indicators are telling us.
The MACD trend indicator is not showing a thing, I changed it for the Average directional Index, which pointed out a substantially growing negative surplus, even though the momentum is weak. The 13-week RSI went back below the 50 level, underlining bearish sentiment. The most interesting part is where the long-term exponential moving averages come in: EMA89 at 1.3164 (breached), EMA144 at 1.3054 and EMA233 at 1.2812.
The weekly Ichimoku Cloud indicator points out a bearish crossover of the leading span, while the weekly close rate went out of the cloud, breaching the support level. Moving forward, the resistance range will come at 1.3190/3225. However, both bearish signs are preliminary and confirmation is required. Both Conversion and Base Lines have to get out of the span. USD/CAD should chart several consecutive lower lows to meet that condition.
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