August 28 was the last time I wrote about USDCAD.
And after nearly two months, the pair has moved just 150 pips lower.
The lack of movement is one reason I haven’t discussed USDCAD lately.
My recent lack of interest in the pair also stems from the fact that USDCAD has yet to break free from the terminal pattern I discussed nearly two months ago.
However, this week’s price action may have changed all of that.
But before we get to that, I want to point out a few things.
1. Two channels in play
Do you remember the two channels below from August 28?
Notice how the USDCAD has been trending inside the larger descending channel since July 2015.
The smaller ascending channel, on the other hand, started to materialize in September 2017.
The intersection of ascending channel support and descending channel resistance form a terminal formation we can use to our advantage.
2. Will history repeat?
This isn’t the first time the USDCAD has formed an ascending channel within the broader descending one.
The pattern that developed between June 2016 and June 2017 triggered a 1,100+ pip selloff.
Notice too how that decline bottomed in September 2017, which helped develop the larger four-year pattern.
3. Swing highs and lows
What I’m about to share with you is my favorite way to evaluate trend strength.
It’s also incredibly handy for spotting potential breakouts early.
And best of all, it only takes a few circles on a chart, which is something anyone can do.
Notice how USDCAD has started to carve lower highs since December of last year. This comes after fourteen months of higher highs.
Also, that lower low this past July was the first since September 2017.
All of this points to a weakening trend that could break channel support over the next few sessions.
If the USDCAD can confirm a daily and preferably a weekly close below support around 1.3140, we could see this rally begin to unwind.
My first target for a move lower is just above 1.3000.
A close below the 1.3000 handle would expose the 1.2870 area, which is also the 50% retracement of the September 2017 to December 2018 range.
Just remember that there are no guarantees.
As appealing as today’s commentary may be, there’s always the chance that a move lower from USDCAD turns out to be a bear trap.
That said, it’s going to take a higher high from USDCAD combined with a close above the 1.3400 area for me to reverse my bearish outlook for the pair.
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