Price action on the USD/CAD daily chart shows that the bullish rally that extends back to the June 18th low of 1.2126, is showing signs of moderation back towards the 1.26 level. The chart above is displaying a potential bearish ABCD pattern that may have formed on Tuesday when price rallied to the 141.4% Fibonacci expansion level of the B to C leg.
If we see further weakness here, price could target 1.2625, which is the 23.6% Fibonacci retracement of the C to D leg. It is around that area that we may see the bullish trend reassert itself. Key resistance will come from the March high of 1.2834. If the Canadian dollar remains excessively weak, we could see price ultimately target the 1.30 handle.
In the event, we see a major correction here, weakness could target a confluence of support from both the 100-day SMA (which is trading near the 1.24 handle) and the bearish trendline that extends back to the noted March high.
The trade: Buy USD/CAD at 1.2625 with a stop loss at 1.2525 and take profit at 1.2825. The risk/reward ratio is 1:2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading