The USDCAD rallied sharply from its strong support level as visible in this D1 chart. This currency pair has now exhausted its rally as it ran into a very strong horizontal resistance zone and the top of its zone would cause the formation of a double top which is also a bearish chart pattern. Additionally we have a very solid inverted hammer candlestick which is a very bearish signal especially given its location at solid resistance levels. We expect this currency pair to correct back down to its support level, but form a higher low.
MACD has completed a bullish centerline crossover which we expect to revert back into bearish territory during the correction. The histogram has gaped away from its moving average and we believe the gap will be closed during the correction as well. RSI is trading in overbought territory and a breakdown should initiate the sell-off.
We recommend a short position at 1.0525 with a potential second entry level at 1.0675. We also recommend a stop buy order at 1.0650 in order to hedge the initial short position and before adding new short positions to this trade.
Traders who wish to exit this trade at a loss are advised to pace their stop loss order at 1.0675. We will not use a stop loss order and execute this trade as recommended. Place your take profit target at 1.0375.
Here are the reasons why we call the USDCAD currency pair lower:
- The USDCAD rallied sharply from its support level and currently trades at very strong horizontal resistance levels
- Inverted hammer formed at resistance which is a very bearish signal
- MACD shows momentum is fading and a gap has opened between the histogram and the moving average which we expect to close
- RSI is trading in overbought territory and a breakdown should initiate the sell-off
- Profit taking in order to realize trading profits at very solid resistance levels
- New short positions by institutional swing traders