USDCAD is in a clear downtrend on the daily chart, making lower highs and lower lows since falling from the May 5 peak of 1.3793. This marked the highest level since February 2016.
After falling below the 200-day moving average (MA) on June 13, prices accelerated their decline to touch a 2-year low of 1.2413 on July 26. The market made a corrective move and bounced from these lows after becoming overextended, as indicated by RSI falling into oversold territory below 30. A consolidation phase is expected in the near term around the key 1.2500 level. There are no signs of a reversal in the trend yet and the bearish market structure remains intact.
USDCAD is trading below the 200-day MA, which asserts a bearish view. The cross of the 50-day MA below the 200-day MA on July 13 gave a bearish signal. Meanwhile the downward sloping 50-day MA is suggesting there is downside pressure in the market.
A further decline in USDCAD from current levels would target the next major lows at 1.2127 and 1.1919.
If RSI continues to move higher and further away from oversold levels, USDCAD could pick up momentum and rise. But the pair could find immediate resistance at 1.2700, which also acted as a barrier last month. A successful break above this level would bring into view an important zone between 1.2945 and 1.3014 – an area where there was significant congestion and which previously acted as support and resistance. From here, further resistance is located at 1.3200 and 1.3345. A break above 1.3550 would shift the bias to a more bullish one and open the way to retest the May 5 high of 1.3793.
The outlook remains strongly bearish unless USDCAD rises above 1.3000. Above this level the bias would shift to a more neutral one.
