USDCAD – Opens Below Medium Term Bullish Support, May Target 50% Fibonacci:
The daily candle chart below shows the United States Dollar (USD) versus the Canadian Dollar (CAD) over the medium term. This currency pair is generally known as USDCAD, and is currently trading near 1.0346 after opening below a medium term bullish support line (point 8 in green on chart) in today’s trading session.
The pair has recently entered a short term bearish channel (point 1 in magenta) after failing to break above medium term resistance (point 4 in yellow) over the past few weeks and as discussed in late August 2013 in a previous article - where a bearish continuation was correctly predicted to occur near 104.00 by the beginning of September.
In yesterday’s session the pair closed below medium term bullish support (point 8) and the 61.8% Fibonacci retracement level (point 7 in gray). The low of today’s session near 1.0329 (as of publication) appears to be on a short term bearish support line (point 1) and near the 50% Fibonacci retracement level (of point 7) near 1.0312. Further support may be targeted on 1.0245 (near the 38.2% level of point 7) as well as long term bullish support (point 6 in dark green).
Although the very short term momentum is bearish, the trend over the medium term and long term still appears bullish. Therefore, this bearish momentum may be a correction if the bullish support lines (point 6 & then point 8) can be regained vis-à-vis a short term bullish trend line (such as point 2 in blue) which could develop if there is a bounce. However, any bounce could be that of a “dead-cat” which would be short-lived with sustained bearish momentum following.
Trend-Followers may be building short positions (selling) expecting a continuation, whereas Contrarians may be building long positions (buying) and looking for a reversal or bounce:
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.0381 with a Limit to take profit @ 1.0438 and a stop-loss @ 1.0341 Risk/Reward Summary: Limit risk = +57 pips profit / (-40) Stop-loss risk = Gain to Loss ratio = 1.42
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.0329 with a Limit to take profit @ 1.0299 and a stop-loss @ 1.0352 Risk/Reward Summary: Limit risk = +30 pips profit / (-23) Stop-loss risk = Gain to Loss Ratio = 1.30
Medium term daily candles: