USD/CAD Rally Capped At Horizontal Resistance

After an attempt to break lower from a bearish flag pattern at the European open, USD/CAD recovered higher to wipe out early day losses. Gains in the pair, however, were capped at resistance which resulted in a retreat back towards Friday’s closing price.

Resistance at 1.3371 marks the low from the first trading week of March and held the exchange rate lower for a second time today.

The pair has been correcting higher in what appears to be a bearish flag pattern. The pattern is drawn by connecting the March 16th spike low with the low posted on March 17th.

A brief break below the pattern in early European trading was not sustained and a quick reversal led to a green candle on an hourly chart to remain inside the pattern. The lower bound of the flag had carried confluence with a horizontal support level at 1.3317. The level is significant as it triggered a reversal in a recovery that followed the January BoC meeting.

A near-term directional bias remains dependent on a break of the flag pattern.

WTI crude oil prices (USOIL) broke lower today to invalidate an inverted head and shoulder pattern that was seen on an hourly chart. The lower bound of a rising channel provided support and triggered a bounce higher in North American trading. The rising channel has encompassed price action since early August and is best seen on a daily chart. While above the lower line, there remains some potential for a recovery in oil prices. USOIL was last seen at $48.16 for a loss of 53 cents or 1.08%.

The US dollar index was under pressure in early Asian trading but was lifted higher at the European open after falling a few points shy of testing the psychological 100.00 level. The recovery has wiped out early day losses and indicates a failed attempt to break important support at 100.18. The index remains relatively unchanged on the day, shortly after the North American close.

While USD/CAD has been recovering, upside momentum has been lacking, suggestive of a correction. The focus to the downside remains at the lower bound of the hourly flag pattern as well as support at 1.3317. To the upside, a sustained break above the upper bound of the flag would be required to shift the view of the current recovery from a correction to an impulsive rally.

USD/CAD 1-Hour Chart

USDCAD 1H March 20

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Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.