On January 20th, USDCAD began a steep descent that would eventually erase more than 2,000 pips before finding support at the 1.2460 handle in early May.
To put things in perspective, it took 74 trading days to wipe out 143 days worth of gains.
I don’t think anybody foresaw such a rapid decline, especially given how buyers appeared untouchable since the rally began in 2011.
But no market can elude the effects of gravity forever.
The consolidation that has taken place since the May 3rd low at 1.2460 has formed a bear flag pattern. Such a formation often signals a continuation of the prevailing trend, which has been down for several months.
In addition to the channel floor, the pair is currently retesting the 1.30 horizontal support level. This area has attracted bids on the last few attempts since July 29th.
Given the three-month bear flag, this confluence of support may offer a compelling area from which to trade a downside break. But as always, a daily close below the 1.30 handle is needed to confirm the pattern and open up downside targets.
The first objective for a move lower comes in near the June 20th gap at 1.2845. A break there would expose the June 23rd low of 1.2678 followed by the prominent 1.2460 May low.
The only thing that could take the weight off of 1.30 would be a move above the July high at 1.3253. This seems unlikely given the fact that so far in August USDCAD has carved out a lower high compared to that of July.
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