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BoC Surprise Hike; Further Downside for USD/CAD?

By:
Aaron Hill
Published: Jun 7, 2023, 17:48 GMT+00:00

USD/CAD seen testing major support.

US and Canadian Dollars, FX Empire

In this article:

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.

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Charts: TradingView

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

About the Author

Aaron Hillcontributor

Aaron graduated from the Open University and pursued a career in teaching, though soon discovered a passion for trading, personal finance and writing.

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