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The USDCAD has been slow to develop since its recent parabolic move.
Following the March rally that took the pair over 1,000 pips higher in just eight days, the price action has been subdued.
Consolidation like this after a massive rally isn’t surprising, though.
A market needs time to shake out weak hands if it intends to rally further.
Consolidation, like we’ve seen from USDCAD recently, is a requirement for me to consider playing the next leg.
Furthermore, as you can see from the chart below, the USDCAD has carved what appears to be a bullish flag pattern.
It isn’t what I would consider a conventional pattern as bull flags usually develop from the recent peak.
However, the extreme volatility in late March probably has something to do with that.
I shared this pattern with DPA members on Tuesday before the most recent test of channel resistance.
As anticipated, the USDCAD encountered selling pressure at 1.4140.
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That’s the top of this descending channel, or at least it was on Thursday.
So, where does USDCAD go from here?
Do we get an immediate breakout, or another pullback first?
While there are no guarantees, the price action since mid-April leads me to believe a breakout isn’t far away.
Notice the higher lows as USDCAD pushes against channel resistance.
That’s a sign of increased demand.
But regardless of what USDCAD has done recently, buyers need to secure a daily close above the channel top near 1.4130/40 to confirm the breakout.
Until then, expect this consolidation to continue.
Key support comes in at 1.3850.
A daily close above channel resistance would expose 1.4340, 1.4660, and perhaps the 1.5100 area.
The measured objective for this structure is 1.5500.