Forex Investment and Currency Trading

Short-Term Technical View: Still Bullish, But Overbought
Ascending Channels Remain Dominant, but Valuations Stretched
USD/CAD remains dominated by an ascending channel, with resistance at 1.1389 and support at 1.1069. A minor ascending trendline at 1.1210 offers initial support. It would take a move below 1.0807 to bring a bullish thesis into question. Such a move seems unlikely in the current environment. Valuations are overbought, and have remained stretched for the past several weeks, so there is scope for a short-term reversal. However, it would likely only be a short-term reversal to more reasonable levels ahead of a more sustained, though less rapid USD/CAD rally. It is reasonable to presume that the ascending trendline at 1.1069 looms as a key short-term support level for USD/CAD. It represents a strong source of USD/CAD support since late September. Thus, a break there would leave scope for moves to lower levels. Sell offs to 1.0954 and 1.0807 are to be treated as opportunities to buy USD/CAD. While 1.0807 would bring the bullish backdrop into question, a break below 1.0666 would be required to signal a change in sentiment.   

Medium-Term Technical View: How Much of the Sell Off to be Unwound?
September 30 Bullish Trend Reversal Remains Dominant Theme: Redux
The break of 1.0576 on September 30 continues to be the overarching dominating theme in USD/CAD. In particular, many of the key resistance and support levels lay on ascending channels, highlighting the underlying upward momentum in USD/CAD. Sell offs are still to be treated as buying opportunities. However, valuations are stretched, leaving scope for a short-term pull-back to 1.1168 and 1.1105. A move toward 1.0837 would present an intriguing buying opportunity. In terms of resistance, there are few levels that are becoming important. In particular, watch 1.1525, which is the 50% Fibonacci retracement of the USD/CAD sell off from May 2004’s 1.4002 to the November 2007 low of 0.9059. There is also trendline resistance at 1.1635. Another level that is showing on the screens is 1.1779, which is the 38.2% Fibonacci retracement of the USD/CAD sell off from 1.6193 in January 2002. That is the full USD/CAD sell from the historic peak.