The USDCAD closed above a significant level on Wednesday. The 1.2420 handle is the July low and is also an area that played a key role as support between January and April of 2015.
With yesterday’s close of 1.2477, any retest of the 1.2400/20 area as new support will likely encounter an influx of buying pressure.
However, there is also a second break that occurred in the last 24 hours.
Following the mid-August rejection from 1.2770, the USDCAD began forming a downward sloping flag. Although somewhat rare, sloping flags can produce some of the best setups.
Because they tend to occur at significant turning points, the reward is often well worth the risk. That’s certainly the case with the USDCAD given that the next resistance at 1.2770 is a considerable 300 pips above current prices.
The plan from here is straightforward. Any retest of the 1.2420 area as new support could produce a favorable buying opportunity. I’m going to stand aside and let the pair mean revert before watching for bullish price action from the 1.2420 area.
As long as buyers keep prices above the 1.2420 mark on a daily closing basis, 1.2770 is the target. Alternatively, a daily close (5 pm EST) back below 1.2420 would negate the short-term bullish outlook.
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