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USDCAD chart analysis – Major Breakdown following a surprising Rate Hike

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USDCAD was one of the FOREX pairs that I had on my watch list last week.

Just before last week’s BOC’s rate decision, USDCAD was testing (for the second time) a very interesting weekly support zone – 1.24-1.245:

USDCAD analysis

USDCAD weekly chart



As you can see, right around 1.24-1.245, USDCAD was testing its weekly uptrend line and its 200 weeks MA line, as support.

I was monitoring that Price Zone (1.24-1.25) for few weeks, with the intention to buy USDCAD if it will bounce from it (for the second time).

That obviously didn’t happen.

When the BOC decided to surprisingly hike rates last week, the weekly support zone failed to hold the price above it.

A surprising rate change (rate hike or a rate cut) is probably one of the most powerful price action catalysts in the FX industry (excluding geopolitical catalysts and bank interventions) – That is exactly the kind of force you need to break a weekly support zone like we had last week in USDCAD.

USDCAD broke and closed below 1.24.

The question is … now what?

harmonic trading USDCAD

USDCAD – Weekly Harmonic Trading Pattern

In an attempt to figure out where USDCAD is heading to next, I’ve found the bullish AB=CD pattern that you see in the chart above (learn more about harmonics).

The completion zone (the PRZ) is near 1.15-1.17.

The PRZ of the weekly AB=CD patterns also aligns with the 61.8 Fibonacci correction level of the recent swing high (learn more about Fibonacci) – That adds significant weight to the potential strength of this weekly support zone.

USDCAD analysis

USDCAD – Fibonacci Levels

The two charts above show us that should USDCAD will reach 1.15-1.17, it will present a potential buying opportunity.

Mark this price zone on your chart, set up and alert for it, and put it on your watch list.

It will probably be worth the wait…

Psychological Price Zone ahead

Above I wrote about the potential bullish scenario that will be relevant should USDCAD reach 1.15-1.17.

That’s about 300-500 pips below the current price.

In order to reach there, USDCAD’s sellers will have to overcome the buyers that are probably waiting near the 1.2 psychological price zone:

USDCAD analysis

USDCAD – Testing a psychological price zone

USDCAD has already fallen more than 1500 pips from its high (the top of the weekly channel near 1.4) and we haven’t seen a weekly correction wave yet.

A bullish pullback move from 1.2 is definitely an option that you should monitor in the coming few weeks.

Here are the key economic events that can impact USDCAD in the near term future:

  • FOMC (September 20th)
  • CAD CPI data (September 22nd)
  • OPEC meeting (September 22nd)

Short term trading scenarios

usdcad analysis

USDCAD – Trading Scenario 1

The first trading scenario is what I like to refer to as the “Aggressive Entry Approach”.

With aggressive entry approach, you do not wait for technical confirmation signals before you take action – You simply Buy/Sell the Price Zone when the price reach it.

The scenario shown above suggests to buy 1.2, should the price reach it.

Stop loss should be wide enough to avoid being spiked out of the trade (spikes around psychological levels are pretty common).

USDCAD analysis

USDCAD – Trading Scenarios 2

The other way to play the short term bullish scenario in USDCAD, a bit more cautious and conservative, is to zoom into lower time frames and seek for bullish confirmation signs (like higher highs, bullish reversal patterns etc…).

The scenario shown above is an example that uses the hourly chart to find bullish entries following structure breakouts.

As you can see, if USDCAD will break and close above the 1.215-1.217 resistance zone (structure and MA lines), it will provide a short term bullish signal that will allow you to try and buy it with a stop loss below the recent low.

Summary

The weekly breakdown that we saw last week when the BOC hiked has turned my outlook for USDCAD from bullish to bearish.

The current technical status of USDCAD, based on the weekly/daily time frame analysis, suggests that it is better to sell highs than to buy lows.

This status will change if USDCAD will suddenly rally back above 1.25… or it will reach the next potential Buy Zone 1.15-1.17.

But…

If you have no problem with counter trend trades, you can still trade the potential pullback move.

It can even be lucrative.

We are talking about a move, from 1.2, that can potentially reach 400-500 pips… and you only have to risk 100-200 pips in order to find out if you are right or not.

The R/R can range from 1:2 to 1:4, depending on your entry style and your trade management approach.

As always, trading is about decision making… and YOU need to take a decision.

The analysis described here should provide you with the information required to take your next trading decision on USDCAD.

 

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