USD/CAD touched its highest level in over two weeks on Tuesday before reversing sharply. The subsequent price action has left a clear “outside day” pattern which is a classic hallmark of a reversal. In addition the pair has left two clear “tails” or spikes on the chart as it has approached the 1.0100 resistance area. Such price action is potentially quite bearish and suggests the recent move higher is beginning to lose momentum. We should also point out that this price action in Funds mimics the action seen at the end of last month ahead of the most recent decline.
Follow through weakness on Wednesday or Thursday below Tuesday’s low in the 1.0020 area should confirm the start of a further decline back towards last week’s low in the .9930 area. There is also a chance that the price action over the past few days constitutes the second high of a double top which would pave the way for further weakness on a break of recent lows. Strength over Tuesday’s high in the 1.0085 area would undermine the negative prospects of the price action over the past couple of days and signal a likely resumption of the broader uptrend
USD/CAD Daily Chart: February 12, 2013
Charts Created using Marketscope – Prepared by Kristian Kerr
Data in Canada is light over the next week or so, but with the head of the Bank of Canada in transition to the Bank of England we will be watching the wires closely for any potential comments on future policy. In the US, January retail sales are slated for release on Wednesday while a 30-year Bond auction is scheduled for Thursday. Both have the potential to impact trading in Funds.
LEVELS TO WATCH
Resistance: 1.0088 (Tuesday’s high), 1.0130 (61.8% retracement of 2012 range)
Support: .9995 (38% retracement of the year-to-date range), .9960 (50% retracement of the year-to-date range)
STRATEGY – SELL USD/CAD ON STRENGTH
Stop: 1.0102 (-55 pips)
Target 1 (Reward/Risk Ratio): .9965 (+82 pips, 1.49)
Target 2: .9920 (+127 pips, 2.31)
*After entry move stop to Breakeven on touch of Target 1
Timeframe: 1 week
--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com
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