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FX analysis

Chart of the week – Bearish reversal sighted in USD/CAD

bank of canada

Chart of the week – USD/CAD

Bearish reversal sighted in USD/CAD 

Short-term technical analysis (1 to 3 weeks)

Time stamped: 29 May 2022 at 12:30pm SGT (click to enlarge chart)

Source: CMC Markets

  • Since its 12 May 2022 high of 1.3077, USD/CAD has staged a decline of 359 pips to print low of 1.2718 on 28 May 2022 in the backdrop of the upcoming Bank of Canada’s (Boc) monetary policy decision on Wednesday, 1 June 2022. Consensus is calling for a third consecutive interest rate hike of 50bps.
  • Bearish bias in any bounces below 1.2915 key medium-term pivotal resistance for a further potential decline towards the next supports at 1.2650 and 1.2570. However, a clearance with a 4-hour close above 1.2915 negates the bearish tone for a squeeze up to retest the major range resistance zone of 1.3020/3075.
  • Bearish elements; the price actions of USD/CAD have shaped a bearish breakdown from a short-term bearish reversal “Head & Shoulders” configuration on 26 May 2022 where its former neckline support now turns into a pull-back resistance at 1.2790, the occurrence of such bearish breakdown has materialised after a push up and challenge on its major range resistance of 1.3020 (see weekly chart), short-term momentum remains negative as depicted by the 4-hour RSI oscillator as it has not shaped a bullish divergence signal at its oversold region.
  • The recent weakness seen in USD/CAD is in line with broad based USD weakness seen in the past two weeks where the US Dollar Index has failed to have a clear bullish breakout above a key resistance of 103.65 in place in since January 2017. Price actions have breached above 103.65 on 10 May 2022 but retreated below it thereafter and looks set to have a monthly close below 103.65 as we head into the last two trading days of May.

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