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USDCAD Confluence a Hint or Mere Coincidence?

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Four trading days have passed since I last mentioned USDCAD. At the time, the pair was struggling to find a bid in the 1.2850 area. Fast forward to today and we can see that buyers haven’t let it slip below this area on a daily closing basis since May 3rd.

As you may well know, I’m a huge fan of using confluence to identify critical levels from which to enter and take profit. However, the concept can also be useful when it comes to determining the likelihood of a given scenario.

Let me explain.

There is a potential inverse head and shoulders pattern forming on the USDCAD 4-hour time frame (second chart below). Note that I said “potential” as the structure is far from complete.

Now, here’s where the notion of confluence can make things a bit more interesting and substantial.

If the price action since the second week of April is indeed a reversal pattern, the measured objective comes in at 1.3575. At first glance, this appears to be a relatively arbitrary figure, until we add a second layer of analysis.

If we draw our Fibonacci levels from the January high at 1.4689 to the current May low at 1.2460, the 50% level, which is arguably the most influential, is located at 1.3572.

To sum up, that’s a three pip difference between a potential objective and the 50% retrace of a move that spans more than three months.

Measured objective on the USDCAD 4-hour chart

You can get this same objective on your chart by using the level shown below. It’s exactly 540 pips when measuring from the current 2016 low to neckline resistance.

So I ask, is this a sign of things to come or a mere coincidence?

While no one can know for sure, one thing I can say is that we’ll be one step closer to an answer by Friday. The remainder of the week is littered with heavy-hitting event risk for both the USD and CAD that should force the pair to choose a direction before the weekend.

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USDCAD 4-hour potential inverse head and shoulders pattern

Leave a Comment:

7 comments
R says

Thanks Justin for excellent thought process.
As you said, there is FOMC meeting after few hours, so there’s a risk holding this trade because of expected volatility. After the news, the pair will get a direction, but price may already go up 100 pips or so after FOMC. That’s a two-sided sword 🙂

Reply
    Justin Bennett says

    The trade you speak of doesn’t technically exist yet, which is why I emphasized that this is a potential reversal.

    Reply
      R says

      Thanks Justin

      Reply
Keith Lewis says

Could you explain how you achieved a measured objective of 1.3575 please? I can see the 50% fib but cannot figure your initial logic.
Really enjoy your trading suggestions, thanks.

Reply
pedro says

Hi justin

how do you make the measure without knowing where the breakout will occur?

Reply
    Justin Bennett says

    Pedro, it’s an estimation. Of course, the level could change upon a confirmed breakout, but it’s doubtful that it would be a substantial difference given the angle of the neckline.

    Reply
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