I received several requests over the weekend for an update on the USDCAD. It wasn’t included in the weekly forecast mainly because I was waiting to see what happens at the 1.2410/20 support area.
While today is far from over, it seems buyers are indeed stepping in at the July 2017 lows. The 1.2410/20 area was the target for the December 27 break of range support at 1.2670.
Bear in mind that the USDCAD has also traveled 250 pips since that breakdown in late December. As I pointed out in the most recent Q&A post (see the EURJPY example), the height of a range can be used to find targets.
Given that the USDCAD range below was 240 pips, the target for the December 27 break was just above 1.2420. That doesn’t mean the selloff is over, but it does lend credence to the notion that 1.2410/20 area is a hurdle for sellers.
So where to from here?
There are a few considerations. The first is the 1.2410/20 support area. As long as it holds as support on a daily closing basis (New York 5 pm EST), further downside will be limited.
Another factor is the distance from the 10 and 20 EMAs. For me, the two moving averages represent the mean or average price of a market. So when a pair extends too far above or below them, the odds of a retracement or consolidation increase.
At the moment there are approximately 150 pips between today’s price and the 10 and 20 EMAs. With this in mind, I suspect we’ll see a retracement or at least some consolidation before the next leg lower.
If buyers do force a retest of 1.2670 as new resistance, I will be on the lookout for bearish price action. Alternatively, a daily close at 5 pm EST below 1.2410 could set up a short opportunity for a move toward the 2017 low at 1.2080.