A very important battle is currently being fought on the USDCAD. It’s a long-term situation, so the outcome of this battle should show us the direction for the next few weeks or maybe even months.
outcome of this battle should show us the direction for the next few weeks or maybe even months.
What we can see currently on the chart is a giant Head and Shoulders pattern (gray), fully formed and finished. The price is currently testing the neckline of this formation (orange), which interestingly is also in the same place as the 23,6% Fibonacci.
In case of a breakout to the downside, in other words the price closing a day below the orange area, we’ll receive a proper, long-term sell signal. On the other hand, the price defending this support and creating for example a hammer, could be a signal to buy.
In case of the first scenario, we have a few possible targets for sellers. The first one which comes to mind is the 38,2% Fibonacci, which (surprise, surprise!), is on the same level as highs from July and September (yellow). We also have three different up trendlines (blue), which can be tested at various stages of the down trend.
As you can see, our outlook is a bit pessimistic but again, sellers need to break the neckline first, without it, buyers are still ahead and can treat the recent drop as a simple, non-threatening correction.