BoC Surprise Hike; Further Downside for USD/CAD?

Active Higher Timeframe Technical Support

From the monthly timeframe, chart pattern enthusiasts will acknowledge that since October 2022, price movement has been compressing between converging ascending/descending lines from C$1.3978 and C$1.3226 to form a potential pennant pattern. As you can see, price is now testing the lower boundary of the aforementioned pattern.

To be clear, while these patterns are considered continuation configurations (meaning a breakout to the upside), a breakout to the downside could also unfold. Should the monthly chart’s Relative Strength Index (RSI) elbow beneath the 50.00 centreline (informing market participants that average losses exceed average gains [negative momentum]), this would, of course, add weight to a (continuation) pattern failure. To the upside, resistance falls in at C$1.4690, while a push south unmasks support from C$1.2801.

As we move down to the daily timeframe, there is a lot going on here. We can clearly see the currency pair shaking hands with the lower boundary of the monthly pennant pattern. This follows the earlier formation of a possible double-top pattern around C$1.3648, with the neckline of this formation aligning closely with the monthly timeframe’s pennant pattern (lower) limit at C$1.3315.

A break of here, alongside a break of the monthly structure, would, therefore, likely trigger breakout sell-stops and potentially trip several protective sell-stop orders from those fading the above-mentioned structure. To the downside, support is at C$1.3208, with a break unlocking the door to a potential (double) AB=CD formation around C$1.3100ish (denoted by two 100% projection ratios).

Short-Term Action at Resistance

Against the backdrop of higher timeframe price action, short-term flow on the H1 timeframe tests the lower side of resistance at C$1.3370. Overhead, C$1.34 warrants consideration, sheltered south of resistance priced at C$1.3412. Lower on the curve, I see limited support until around the C$1.33 neighbourhood.

Potential Direction

We are at a critical juncture on the monthly and daily timeframes: the lower side of the monthly pennant pattern and nearby the daily timeframe’s neckline at C$1.3315. Therefore, should H1 price hold around the area between C$1.34 and resistance at C$1.3370 (likely an area of interest for many sellers, given the bigger picture), this could be an early sign that higher timeframe price action will pursue deeper water beyond their respective supports.

Charts: TradingView

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