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USD/CAD Threatens to Form a Double top

Breakdown and Confirmation: After failing to sustain a break above 1.28, USD/CAD retreated last week following the FOMC statement. Then after a sharp pullback, traders confirmed the price top around 1.28 and held price below 1.2750. This and the fact that the 4H RSI tagged 30 and held below 60 were signs that bears are now in charge at least in the short-term, 4H chart.

USD/CAD 4H Chart 3/26

(click to enlarge)

Bearish Continuation this Week: The 4H chart also shows that price is now trading under the cluster of 200-, 100-, and 50-period SMAs, adding to last week’s bearish signs. As we enter the 3/26 session price continues to fall lower and looks to approach 1.24, and perhaps even the 1.2360, key support level seen in the daily chart.

USD/CAD Daily Chart 3/26

(click to enlarge)

Consolidation; Double Top? The daily chart shows that price has been consolidating under 1.28 since the start of February. There was a common support in the 1.2360-1.24 area. A failed bullish continuation breakout could be a sign that bears are in control, and the support area will be vulnerable this time around. If it breaks, we would essentially get a double top in USD/CAD.

Respect the Support First, but Be Conservative: Still, we should expect at least some bullish attempt form this 1.2360-1.24 area. If we see price stall here and the daily RSI stall at 40, look for a bullish continuation attempt. But first, let’s be conservative. If it is NOT a bullish continuation but simply a pullback, we should limit the bullish outlook to a common resistance at 1.2550, seen in the 4H chart. If price can climb back above 1.26, then it is more likely that bulls are back in control.

Bearish Correction Scenario: If price fails to climb back above 1.26 and preferably holds below 1.2550 for the most part, the pressure would remain on 1.2360. Below that we might look for an extension of the bearish correction towards the 38.2% fibonacci retracement level a 1.1988 up to 12.0.