The USDCAD has rallied sharply after it touched its 200 DMA as visible in this D1 chart. This currency pair then broke through resistance and reached a new multi-month high before retreating. The USDCAD now broken down through support levels and currently trades near support-turned-resistance which also marks the top of is underneath rising wedge formation which is a bearish chart pattern. We expect a correction to take place which would take this currency pair back down to its 200 DMA.
MACD shows that bullish momentum is fading and is approaching its centerline where we expect a bearish centerline crossover which would further add steam to the correction. There is a gap between the histogram and moving average which we expect to close which would provide a good entry point. RSI is trading in neutral territory after it broke down from overbought conditions.
We recommend a short position at 1.04300 with a potential second entry level at 1.0580. We also recommend a stop buy order at 1.0500 in order to hedge the initial short position and before adding new short positions to this trade.
Traders who wish to close this trade at a loss are advised to place their stop loss at 1.0530. We will not use a stop loss order and execute this trade as recommended. Place your take profit level at 1.0200.
Here are the reasons why we call the USDCAD currency pair lower
- USDCAD broke down below support and now trades at resistance of two bearish chart formations
- Price action indicates reversal with bearish engulfing formation
- MACD indicates bullish pressures are receding and is approaching a bearish centerline crossover
- RSI is trading in neutral territory after breaking down from extreme conditions and pending a further breakdown
- Profit taking in order to realize profits
- New institutional short positions by swing traders
- More weak US economic data Bernanke semi-annual press conference and negative impacts of his speech