Currrency Trading How To Trade USDCAD

Dear Traders,

In today’s blog we will be summarizing our Forex analysis on the USDCAD for you so that you have the ability to be ahead of the game.

Those who follow the USDCAD know that the currency pair has been nicely trending up recently. The US Dollar strength of course has helped fueled this surge in the all North American currency pair.

Will this up move continue? And what are the lines in the sand? All these questions will be answered in this article.

But before we start, we would like to know whether you trade the USDCAD? Write down your favorite currency pairs in the section down below.

The first step in our analysis on “how to trade the USDCAD” is the week chart..

Week chart

This chart shows us the the overall longer-term trend has been down. There is clearly evidence of downward pressure which is confirmed by the lower lows and lower highs, the basics of Forex technical analysis.

Since the summer of 2011 however, the USDCAD has been oscillating up and down within a tighter weekly range. These swings up and down seem to be building a wedge.

 

Most recently, the UC has been making higher highs and higher lows and even managed to break through a resistance trend line when connecting the two tops. Could this be the first indication of further up moves?

For that to be confirmed, the current move up would need to break the weekly high at around 1.0450. It is actually approaching that very high as we speak, so this entire region might act as a resistance level. Traders should be more cautious in their Forex trading plan when approaching these key levels. Why?

As the currency is approaching the top, the chances of it stalling and actually giving a retrace or reversal are increasing. The best Forex advice I can give is to keep an eye on candle stick reversal or continuation patterns to see if such a dynamic would unfold. But first let us take a look at the day chart to see if there is enough power and momentum to push through these resistance levels.

Uptrend

The day chart is confirming our suspicious of the week chart and we can clearly see a well built up trend on this time frame.

This move up has approached the 786 Fibonacci level of the last weekly swing high swing low. These are always key levels in the market and tough to break through. This information is valid for any Forex currency pair.

We can see also that the 786 Fib actually cause a day candle to form as a Doji with a slightly bigger wick at the top side than on the bottom.

 

Fib targets

Furthermore on the day chart we can also notice that the UC managed to take out the -618 targets of the 1st swing up and the smaller swing up of the current move. These -618 targets are also quite a substantial level in the market and the likelihood of price respecting it by either retracing or pausing is quite high. So now the question still remains “how to trade the USDCAD”?

Power and momentum

However if we look at the power of the move up on the day chart by checking the AO and looking for any divergence, we are clearly able to see that there  is no sign of divergence what so ever between the 2 recent moves up.

The ADX also confirms a strong trend reading which is well above the 20-25 area. The ADX however is approaching the 50 level and that signals a danger zone as the trend might become sooner or later over extended. Read more here about the ADX. 

 

How to trade the USDCAD

These 2 indicators could give a very good clue and indication that the up move might continue north, but probably only after the currency makes a pause or small retrace at these key Fib levels. Can it still continue a few pips? It definitely can, but the likelihood of bigger movements up seems limited. Here is my view on how the trade the USDCAD:

1)      A break of yesterday’s high could signal a smaller movement up;

2)      A break of yesterday’s low of the day candle might be a first indication of a correction.

Key levels

Because of the strength visible in this uptrend, a trader would definitely want to be very careful at the Fibonacci retracement level of the last swing high swing low. Either aim to take profit on any counter trend trades at the Fib levels and/or potentially even look for buying opportunities at those Fib levels (for example when candle stick reversal pattern is visible on 4 hour or day chart).

As always, Good Trading!