Written by Jamie Saettele, Technical Currency Strategist
The USDCAD remains trapped below a confluence of trendlines on the daily chart. The lines were tested once in early December and price is pressing against the trendline drawn off of the March and August highs once again right now. A breakout would lead to a test of the August high at 1.0866. If resistance holds, then the USDCAD is likely headed back to .9500. See what scenario we see as most probable.
A confluence of lines acting as strong resistance makes a USDCAD long at the current juncture risky. A former support line drawn off of the November 2004, May 2006, and July 2007 lows is now resistance as is the line drawn off of the March 2007 and August 2007 highs. Until the USDCAD breaks through this level, significant downside risk remains. Still, a break would most likely give way to the August high at 1.0866.
The rally from .9055 to 1.0248 is not especially clear but this is one possible count. The rally could be an impulse (5 waves) with wave 5 extended, meaning that the advance is just leg in a larger bullish cycle. Extended 5th waves are almost always retraced and the 61.8% of .9055-1.0248 intersects with the origin of the extended 5th. As such, a return to .9500 would present a high probability long term bullish opportunity against .9055.
Very short term, the decline from 1.0248 to .9755 is in 5 waves. A bounce to the 61.8% of the recent decline at 1.0060 is likely but that would present a high probability short term sell opportunity against 1.0248. Again, the bearish target would be near .9500, at which time a bullish.
Expect a top and reversal in the 1.0070 area and then a drop to .9500 in order to complete the larger correction from 1.0248.