Technical Analysis – USDCAD bullish reversal faces major test
USDCAD has been fighting for a close above the 200-day simple moving average (SMA) at 1.3450 and the five-month-old bearish channel without success over the past few days despite the recent spike to 1.3500.
The pair is exhibiting its best monthly performance since February, and this week’s bounce off 1.3370 helped the pair to stay in the green area. However, the chances of a market correction are now looking larger because the RSI is closer to its 70 overbought mark and the stochastic oscillator has already turned south.
An obvious extension above the channel could reduce negative risks, but only a sustainable rally above the 1.3500-1.3535 zone, which includes the 50% Fibonacci retracement of the 1.3976-1.3115 downtrend, could bolster buying confidence. If the latter materializes, the ascent could speed up towards the 61.8% Fibonacci of 1.3640. Beyond that, buyers would like to see a durable uptrend above the 2020 resistance line at 1.3730, which caused the bearish reversal in March.
Looking for support levels, the 38.2% Fibonacci mark is currently under examination at 1.3430. A move lower could immediately halt around the 1.3370 base, a break of which could see a continuation towards the 23.6% Fibonacci of 1.3300 and the 20- and 50-day SMAs. Should the bears dominate there, the price could experience an aggressive decline towards the 1.3120-1.3145 base.
In brief, USDCAD traders may consider taking some profits from long positions in the coming sessions as the ongoing bullish wave in the price has finally reached the upper boundary of the bearish channel.
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