Yesterday’s price action in USDCAD sent shock waves across the market, especially for those who were long. With many traders taking profit and oil rallying, it’s little wonder why the pair sold off so aggressively.
Despite these factors, I felt that booking profit at the sight of yesterday’s decline was a bit premature, dare I say unfavorable.
Why do I think so?
A look at some of the commentary from late July says it all. As you can see, former channel resistance remains intact as new support. And although the pair has put heavy pressure on the level over the last two weeks, buyers of USDCAD continue to keep the pair propped up above this key handle.
So where to from here?
As always, it’s important to have a trigger that would confirm a potential breakout which would help us define our risk in a way that delivers a favorable risk to reward ratio. Based on the 4 hour chart below, that trigger could be a close above trend line resistance off the August 5th high.
It goes without saying that carving out a new multi-year high above 1.3212 won’t be an easy task, however a break above this trend line would likely produce enough momentum to do just that.
Keep in mind that the month of August is notorious for false breakouts given the lighter than usual volume, so be sure to stay vigilant and keep position sizes in check.
Summary: Wait for a 4 hour close above wedge resistance and then watch for a buying opportunity on a retest as new support. Key resistance comes in at 1.3260 and 1.3470.