Is USDCAD Gearing Up for a Breakout or Double Top Pullback?

by on November 28, 2013 6:34 am GMT

The Canadian dollar has faced two challenges: the collapse of crude prices and the overshadowing of recent economic achievements by the United States.

The USDCAD traded a four pips away from the yearly high of 1.0603 before pulling back. The pair is currently in a small range between 1.06 and 1.0575, but will the USDCAD breakout?

The weekly chart of USDCAD shows two possible scenarios. First, the trend of the USDCAD is over since the low of .9405 made on June 25, 2011. However, 1.06 has been a key barrier to the upside. Since the 2011 low, the pair has reached and traded past 1.06 three times, and every time resulted in a sizable pullback.

The last time this happened was when the 2013 high was made in last June and resulted in a pullback to the weekly 23.5 percent Fibonacci level, near 1.0254. Price action just hit 1.0601 before pulling back. This could result in a double top where large selling pressure is found at key price points.

In the result of a double top, a pullback to 1.395 is expected. This level represents historical weekly price support and is where the 20 EMA is currently located. A decline in the US dollar could happen leading into the December FOMC.

However, if the US dollar continues to gain strength on better economic news, the USDCAD could close above key resistance (red dotted line). If so, the USDCAD will likely trend to 1.0802, or the 38.2 percent Fib. from the five year highs.

Crude also adds pressure to the Canadian dollar because it is the nation’s largest export. It has also collapsed from a yearly high of $112.25 and looking to close below $92 per barrel.

1D Chart of USDCAD

1D Chart of USDCAD