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Most overbought since 2016: USD/CAD technical analysis

By Nathan Batchelor

USD/CAD technical analysis shows that the USD/CAD pair is working within a large rising price channel on the daily time frame. Bulls could test towards the top of the channel, around the 1.4000 level, if they can anchor price above the 1.3700 level.

The US dollar staged a spectacular rally against the Canadian dollar earlier this week as oil prices slumped by 30 percent as key OPEC members Saudi Arabia and Russia failed to come to an agreement over oil output.

USD/CAD analysis shows that the pair has reached its medium-term bullish target and is now its most overbought since 2016, making it vulnerable to price retracements before the next major bulls move commences.

USD/CAD medium-term price trend

The US dollar has staged a minor technical pullback against the Canadian dollar currency, after staging a breakout rally towards the 1.3760 level earlier this week.

We previously noted that gains above the 1.3330 level could provoke a major upside rally towards the 1.3550 and finally the 1.3750 technical area.

USD/CAD technical analysis over the medium-term horizon shows that the pair could retrace back towards key medium-term technical support before staging its next major move higher.

The daily timeframe shows a large rising price channel is in play, with the USD/CAD pair currently trading around the middle of the rising channel. The top of the channel is currently found at the 1.4000 level, while the bottom of the channel is located around the 1.3330 level.

A price gap has formed on the daily timeframe, and is located around the 1.3445 level. Interestingly, the 1.3445 level is major technical support for the USD/CAD pair, and a potential bounce spot for traders looking to enter into the bullish trend.

The risk for USD/CAD bulls is a pick-up in oil prices from current levels and a continuation of U.S Dollar weakness. Furthermore, the RSI indicator on the daily time frame is at its most overbought level since 2016.

USD/CAD short-term price trend

USD/CAD analysis shows that the pair is technically bullish over the short term while trading above the 1.3288 level.

The 30-minute timeframe shows that the latest advance has created a large inverted head-and-shoulders pattern, with more than 200 points of upside potential.

The neckline of the bullish inverted head-and-shoulders pattern is located around the 1.3700 level, and suggest that the USD/CAD pair could rally through to the 1.3900 level.

A possible over extension towards the 1.4000 level is also possible if bulls can anchor price above the 1.3700 level and trigger the pattern into action.

Traders should be aware that the pattern will be invalidated if price crosses below the 1.3515 level. This could prompt a strong decline towards the 1.3300 level, and put the current bullish trend into question with short-term traders.

USD/CAD technical summary

USD/CAD analysis shows that bulls need to maintain price above the 1.3700 level to trigger the next major upside rally. Short and medium-term analysis is pointing to the 1.3900 to 1.4000 levels as possible upside targets.

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