Dollar/Cad is starting to carve a short-term top by 1.3065 and with daily studies showing room for additional corrective pullbacks, we attempt to anticipate just how deep the decline might be.
One technical indicator that we incorporate into our analysis quite often is “former support turned resistance” or in the above example, “former resistance turned support.” Quite often, when a market finally does manage to breakout from a range, it will race higher before eventually pulling back a great deal. It is very common for a breakout to pullback to the previous resistance area, before resuming the overriding trend. In the above example, Usd/Cad has just broken out of a major triangle which ultimately projects upside back towards 1.4000 over the coming months. In the interim, we look for any setbacks to now find good support by the previous resistance/triangle top which currently comes in by the mid-1.2500’s. As such, any dips into the 1.2500 area should be used as opportunities to build on existing longs.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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