USD CAD AT MAJOR TREND LINE- STRONG RALLY AHEAD?
The USD CAD is now just above a major Uptrend Line following a recent downtrend that led to strong gains for the Loonie. With this Uptrend Line having defined the direction of the pair since 2012, we could either see a strong rally above the current Downtrend Line or a major break to resume the downtrend.
This Uptrend Line supported a very strong rally that carried the currency pair from 0,9632 in September 2012 to the high of 1,1277 in March 2014. We can also see that there were four previous rallies at this Trend Line, indicating the strength of this boundary.
Looking at the recent downtrend that has carried us to this Trend Line once more, we can see that it provided a trading opportunity when a Range setup was broken. Entry at the breakout candle could have given the trader a little over 100 Pips with the exit taking place above the Uptrend Line.
From this point, the currency pair can either rally to break the Downtrend Line or break below the Uptrend Line. If it does rally, it can do so with a direct break of the Downtrend Line followed by a test and then a further break long. Alternately, it could also move sideways in a Consolidation before breaking out. Such a setup could also be the precursor to a breakout short below the Uptrend Line.
With the pair already reaching its 2nd Weekly Range, however, further moves bearish could be limited if we don't see a large setup formed in the near future (see Trade Manual). This would give the break of the Downtrend Line a higher probability of taking place, providing a larger range of pip targets to choose from.
As with all scenario analyses, one will have to wait for the best signals to be provided by the market to justify entry. In this very low volatility environment of few opportunities, one will have to be sharp to monitor several currencies at a time to be able to spot these rare, but profitable trades.
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