USDCAD: Testing Bullish Support
The chart below shows USDCAD ascending a steep bullish trend line (point 1 on chart) and then testing long term bullish resistance (point 3 on chart) before retracing back to find support on the resistance line of another long term bullish channel (point 4 on chart) which was the low in the current candle before returning near the high for the session – where USDCAD has just come off and is currently trading lower - near 1.0500).
Considering that USDCAD is still trading within several bullish formations (point 2 and 3 and just broken out of 4) the recent price action and trend has been bullish over the short term and with considerable momentum. However, a failure to break-through current bullish resistance (point 3) could enable a reversal back along a potential short term bearish resistance line (point 5) and to test lower - along the upper band of the long term bullish channel (point 4) which may now act as support.
Therefore, although considerable bullish momentum exists, traders should pay close attention to whether USDCAD can close above current resistance (point 3) and trade higher or whether a false breakout (on point 3) and trend reversal may ensue.
Below are examples of how to trade a bullish continuation if the trend continues or a bearish reversal if the trend reverses.
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @1.0559 with a Limit to take profit @ 1.0591 and a stop-loss to cut losses @ 1.0528 Risk/Reward Summary: Limit risk = +32 pips profit / (-31) Stop-loss risk = Gain to Loss ratio = 1.03
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.0502 with a Limit to take profit @ 1.0455 and a stop-loss to cut losses @ 1.0551 Risk/Reward Summary: Limit risk = +47 pips profit / (-49) Stop-loss risk = Gain to Loss Ratio = 0.96