Market Insight Articles

[MongiIG]

USD/CAD could be on the cusp of a bearish reversal

Rising energy and equity prices raise confidence in a potential bearish reversal for USD/CAD.

Source: Bloomberg

 Joshua Mahony | Senior Market Analyst, London | Publication date: Monday 26 July 2021 

Energy prices on the rise once again

We have seen plenty of volatility for energy prices over the course of the past fortnight, with initial uncertainty and ultimate resolution of OPEC+ talks providing moves in both directions.

The weakness in crude prices brought a five-month high for USD/CAD as the Canadian dollar lost ground. However, with crude ending the week on the front foot, we can see a bearish shooting star candle that could set us up for a period of downside after a recovery that has lasted almost two months.

That rally took the pair back into a confluence of the 76.4% Fibonacci level (1.2732) and the October 2018 low of 1.2782. Interestingly, we have seen the stochastic head back towards the oversold zone.

Source: ProRealTime

 

From an intraday perspective, the pair has been consolidating above the 76.4% Fibonacci support level. Price looks to be heading lower from here but a breakdown from this trend of higher lows would add greater confidence that price will end the uptrend that has dominated the past two months.

With that in mind, a break below 1.2425 brings confirmation that the reversal indicated as a possibility on the wider weekly chart could be coming into play. In particular, a break below the 1.2515 Fibonacci level raises confidence that we will ultimately break that key 1.2425 threshold.

Source: ProRealTime