USDCAD – Bullish Momentum In Newly Formed Channel Meets Resistance
The daily candle chart below shows the price history of United States Dollar (USD) versus the Canadian Dollar (CAD) over the medium term. This currency pair is known as USDCAD and is currently trading near 1.0447 and close to session highs of 1.0459 (as of publication) as the close of the week approaches.
The pair is trading higher after opening at 1.0418 - which coincided near yesterday close -and following two consecutive bullish sessions and just broke above a developing short term bullish channel (point 2 in blue) and a developing medium term line (similar in slope to point 4 in yellow).
If USDCAD can maintain its trajectory and position above these two lines (on point 2 and point 4) then the medium term bullish support line (point 8 in green) below 1.0600 could be targeted and may act as resistance if reached by the end of October.
If the pair cannot stay above the current resistance that it encountered near 1.0400 along these two lines, a return to the 61.8% Fibonacci level (point 7) could ensue with further bearish momentum down a steep bearish line such as (point 5 in red) which could develop. A less bearish fate is also plotted with similar slope to previous short term lines (such as point 1 in magenta), and with the long term support line (point 6 in dark green) further below near 1.0200. The latter of these may become a target by early November if the other above mentioned lines fail.
Last time the USDCAD pair was covered in the Ideas You Can Trade series, the long term bullish support line (point 6 ) was noted as a likely line where the trend could reverse after it had found support there and which ended up being enough to reverse the momentum since that time.
Trend followers may be building long positions (buying) and expecting a continuation, whereas contrarians may be building short positions (selling) and expecting a reversal:
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.0498 with a Limit to take profit @ 1.0530 and a stop-loss @ 1.0477 Risk/Reward Summary: Limit risk = +32 pips profit / (-21) Stop-loss risk = Gain to Loss ratio = 1.52
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.0399 with a Limit to take profit @ 1.0311 and a stop-loss @ 1.0431 Risk/Reward Summary: Limit risk = +88 pips profit / (-32) Stop-loss risk = Gain to Loss Ratio = 2.75
Medium term daily candles: