USDCAD is now approaching an ultra-important long-term support. The price action in this area should determine the direction for the next few weeks, or even months! From a fundamental point of view, CAD is getting stronger thanks to commodity prices, particularly oil. CAD is a commodity currency, so is enjoying the ride on crude & co. This correlation is back and can be clearly seen on the market right now.
From a technical standpoint, the pair is trading inside a long-term flag formation (blue lines), or an upwards channel if you will. A breakout of the lower line of this pattern should bring us a proper sell signal. There is one problem though; the higher lows are a bit irregular, so we can draw two dynamic supports here: black and blue. To be on the safe side, it would be preferable to wait for a definite breakout of both those lines. A breakout of the blue line alone wouldn’t be enough to generate the desired bearish momentum.
As we mentioned above, this formation can also be considered an upwards channel, which makes those two lines proper supports. When there are supports, traders should expect a bounce. A bounce is obviously possible, and in this case, it could form the right shoulder of the iH&S pattern seen on the H1 and H4 charts. A buy signal from this formation will be triggered if the pair breaks the red dynamic resistance, which still can be considered as the neckline. As you can see, traders have two choices here, depending on the price action that occurs on these supports and resistances. This is the beauty of price action; it doesn’t force you to be a hardcore bull or bear forever. Things could easily go either way, but at some point (after a bounce or a breakout), one will look more probable than the other.