USDCAD Looks Ready for Bearish Retracement

• USDCAD battles with 200-day SMA
• Holds above downtrend line
• But momentum indicators show weak signals

USDCAD is holding above the medium-term ascending trend line and is moving back and forth from the flat 200-day simple moving average (SMA) at 1.3483.

The technical indicators are still located in the bullish area, with the MACD stretching slightly above its red signal line but with weak momentum, and the RSI is pointing marginally up near the 50 level. Yet the latter could also be an indication that the rally is overdone, and hence negative corrections should not be a surprise in coming sessions.

Should the price retreat, the 20-day SMA at 1.3415, which the bears were unable to break this week, could provide immediate support. Moving lower, the focus would shift to the 1.3340 barricade, while lower still, a violation of the downtrend line again would increase speculation that the bullish phase has ended and a downtrend is in progress.

In the alternative scenario, traders would eagerly be looking for a break above the 200-day SMA and more importantly the 1.3540 resistance will increase buying orders towards the 1.3630 resistance. If that’s the case, the rally could last until the 1.3630-1.3655 zone.

The recent bullish move above the descending trend line turned the short-term picture to a more positive one. However, the recent sideways move within 1.3415-1.3540 is raising the likelihood for a potential downside retracement again.