Bear Flag Pattern Forming on USD/CAD

If you've been watching the Canadian dollar (CAD) this year, you know it has been throttling the U.S. dollar (USD). The USD/CAD has fallen more than 1,000 pips since March, and it looks like there is more to come. [IMG]http://www.pfxglobal.com/images/Wade/cad_bear-flag.png[/IMG] Source:MetaStockProFX Starting in July, the USD/CAD began retracing a portion of its previous downtrend. As it has done so, it has started forming a perfect bear-flag pattern. A bear-flag pattern is an upward sloping channel that forms during a prolonged downtrend where the support and resistance levels are parallel to each other. A bear-flag pattern suggests that the previous downtrend will resume. Here's what to watch for. You want to see the USD/CAD break through the support level that has formed under the flag pattern---currently, that support level is at 1.5800. If you see the USD/CAD break down below this level, you can consider selling the pair. Of course, you will encounter additional support at 1.0400, but chances are good the pair will break down below this level as well. If the USD/CAD does not break below 1.5800, but instead bounces higher, you can look to buy the pair and ride it up until it hits the diagonal resistance level set by the flag pattern. At this point---just like it is whenever the price is at a support or resistance level---it is a waiting game to see which direction the pair is going to go, but we now know what to do in either case.