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USDCAD Reversal Formation (August 27, 2014)

USDCAD seems to be exhausted from ts recent climb, as a reversal chart pattern can be seen on its 4-hour time frame. The pair is forming a double top after failing to break past the 1.1000 major psychological level in a couple of attempts. Price has yet to drop to the neckline at 1.0850 before completing the pattern.

If USDCAD is able to break below the formation’s neckline, it would confirm that a reversal is in play. This could lead to losses of as much as 150 pips for the pair, which is around the same height as the chart pattern.

If you’re strongly bearish on this pair, you could hop in at market and aim for the neckline support first. If it breaks, you can add to your position then aim for 1.0700 or lower. Trailing your stop can be a good way to minimize exposure and protect profits.

 

Bear in mind that the US is set to release its preliminary GDP reading later this week and possibly show a downgrade from 4.0% to 3.9%, with retail sales data being lowered. Business investment and net exports could make up for this downgrade and keep the GDP reading steady, but a sharp downgrade could lead to longer-term weakness for the US dollar.

By Kate Curtis from Trader’s Way