What’s Next For The Loonie?
Blackwell Global | Oct 06, 2016 06:00AM ET
Key Points:
- Loonie continues to follow the wedge pattern higher.
- Reversal should occur around the 38.2% Fibonacci level.
- Could move as low as the 1.30 handle.
Despite what has proven to be a bumpy ascent, the loonie continues to push consistently higher and this has been exacerbated by the recent swell in sentiment for the USD. As a result, the short-term forecast for the pair should remain relatively bullish. However, keep half an eye on the pair as it could take another corrective slide to the downside as it moves to challenge the upside constraint of its long-term wedge structure.
First and foremost, the daily chart makes it quite patent that the loonie’s long-term uptrend is shaping up to be a rising wedge structure. Additionally, the chart also makes it quite clear that the pair is fast approaching the upside boundary of the wedge. Understandably, there has seen an increase in speculation regarding just when we might see a reversal for the USDCAD. In fact, there is some evidence to suggest that the reversal has already occurred and that the pair is already making its way back towards the downside of the structure.
On the other hand, the balance of evidence seems to suggest that we will see additional near-term bullishness before any potential declines. Firstly, and potentially most obviously, EMA activity remains highly bullish which should help to maintain momentum moving ahead. Furthermore, the 100 day EMA has now finally begun to track higher which should help to moderate the influence of the bears out there.
Secondly, the daily Parabolic SAR is still signalling that the uptrend is in full swing. On its own this might not be particularly compelling but when combined with the relative neutrality of the stochastics and the bullish EMA bias, a continued uptrend seems to be a rather likely proposition. Of course, the loonie will still need to break through the 1.3230 zone of resistance before pushing higher but this is no insurmountable obstacle.
After breaking through resistance, the USD/CAD will most likely move up to around the 1.3303 mark before its subsequent downturn. This price is the best candidate for a turning point as it is an intersection of the upside constraint of the wedge and the 38.2% Fibonacci level. However, keep an eye on the pair as it approaches the 1.3267 mark as this has historically proven itself to be a zone of resistance and could also prove to be a turning point.
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Ultimately, expect to see a degree of bullishness in the near-term followed by a rather sharp downturn for the loonie. Moreover, if past reversals are anything to go by, the pair could sink as low at the 1.30 handle in a limited number of sessions. Additionally, monitor the fundamental side of things as well as they could provide the kick needed to see the upside challenged strongly.
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