- USD/CAD has reached the top of a range it has been trading in for over three months.
- It could either breakout higher or pull back down and start descending back down to the bottom of the range.
USD/CAD has risen to the top of the range it has been trading in since the middle of April. It is at a critical point – a decisive breakout higher would signal a new uptrend; a reversal, however, might signal the continuation of the sideways trend it has been in for the last over three months. Given the “trend is your friend” the odds marginally favor a continuation of the sideways mode.
USD/CAD Daily Chart
USD/CAD formed a bearish Shooting Star reversal candlestick on Thursday. If the following day – Friday – ends as a bearish red candlestick it will add confirmation to the pattern and suggest a deeper pull back will probably unfold.
The Relative Strength Index (RSI) entered overbought territory on Thursday during the formation of the Shooting Star. If the RSI ends Friday back below the overbought zone (under 70) it will add evidence of a short-term reversal of the trend.
A deeper pull back would probably fall to the top of the range-within-the-range at 1.3790 initially. A deeper correction might start falling back down towards the range floor at 1.3592 as the sideways trend extends.
Alternatively, a break and close on a daily basis above the high of the Shooting Star candlestick at 1.3849 would suggest a breakout of the entire range and extension higher.
Such a move would be expected to reach an initial target at 1.3910, the 61.8% Fibonacci extension of the range-within-the-range higher. The next target would be at 1.4000, the extension from the broader range using the April 16 high as the top.
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