Trading with Trendlines: USD/CAD

It’s a coincidence that USD/CAD is called a petrocurrency – the CAD continues rising together with the WTI and apparently no USD rally can affect that process.

Since 3rd May 2016 the pair has been moving within a trend channel, rising from 1.24605 to 1.35883, reaching the upper fourth point of the channel and forming a doji bar on the weekly time frame, after which it started moving to the downside towards the support trendline. I have little doubt it will reach it. The same movement is very clear on the daily time frame as well.

This channel has been forming for over seven months and there is also little doubt that there will be a breakout sooner or later.

The question is what will follow next? The pattern that has been forming strongly resembles a pennant and by that logic if there is a breakout to the downside the pair will reach the limit of that pattern, falling with 727 pips from the breakout level.

Let’s also examine the situation on the shorter, 4H time frame. Here we can see that the move to the downside has been developing within an almost perfect trend channel, there is a possibility for the pair to form a correction towards the resistance trendline (in red). In case there is a breakout to the upside we could expect a corrective rally of about 145 pips, then a drop and a possible breakout below the large trend channel on the weekly time frame.

In the alternate scenario the pair will reach the red trendline and then rebound from it, breaking below the trend channel on the weekly time frame.

In my opinion, the least likely scenario is for the move to the upside on the weekly time frame to be renewed.