Chart Of The Day: USD/CAD Bottoms Out?
Fawad Razaqzada | Jan 21, 2022 22:30
This article was written exclusively for Investing.com
Following Thursday’s big reversal in US stocks, we have seen some risk aversion in other markets too including FX, crypto and crude oil. Commodity, dollar and some merging market currencies have fallen sharply, while the safe haven Japanese yen has found support.
With the North American session about to get under way, the USD/CAD is in sharp focus. Given that sentiment has turned sour towards risk, the USD/CAD could pop higher, even if the upcoming Canadian employment report beats expectations.
Indeed, the USD/CAD has managed to hold onto this bullish trending line that has been in place since June, with the 200-day moving average offering additional support:
What makes the above technical area even more significant is the psychologically-important 1.2500 handle. With all these technical factors converging, you can see why the bulls have apparently stepped in to buy the dip.
Already, the USD/CAD has formed two hammer candles in as many days. Today, the bulls’ collective buying power has lifted rates momentarily above the highs of those hammer candles. A decisive break could see the resumption of the bullish trend.
In the likely event we see a bullish breakout, the next level of potential resistance to watch comes in around 1.2610, previously support. Beyond this level, the short-term bearish trend line comes in around the 1.2700 area. Thereafter, the next big level is the previous highs and the next psychological handle around the 1.2950 to 1.3000 area.
It should be noted that all bets would be off in the event of a clean breakdown below this week’s low, for this would also remove the trend line support, as well as the 200-day moving average. But as mentioned, this is not my base case scenario.
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