For USD/CAD Traders Patience Is The Key

he Weekly U.S. Dollar/Canadian Dollar, symbol USD/CAD, has an interesting chart pattern. Based on the main range of .9406 to 1.0667, a retracement zone has been created at 1.0031 to .9884. Since crossing the 50% level at 1.0031 the week-ending January 27, this currency pair has straddled the zone, finding resistance at the upper level and support at the lower Fibonacci level at .9884. 

Although the main trend is down, a main bottom has formed at .9841, creating a support base and giving the currency pair a slight bias to the upside. Earlier this week, traders once again rejected 1.0031, setting up the market for a possible retest of the lower boundary at .9334. This type of trading indicates indecision.

This conclusion is being supported by the triangle chart pattern that has been formed by a pair of Gann angles. From the bottom at .9406, a 37-trading day uptrending Gann angle is at .9776 this week. A 27-trading day downtrending Gann angle from the 1.0657 top comes in at 1.0117. These two angles form the support and resistance lines of the triangle chart pattern.

A triangle chart pattern is a non-trending pattern. The fact that theUSD/CAD currency pair is consolidating or moving sideways inside of the triangle makes it a non-trending pattern. This action is compressing the price action which often indicates impending volatility. Adding to the price compression is tight trading ranges being created by the 50% and 61.8% retracement zone.

As the market moves through the triangle, prices could compress even further until the USD/CAD reaches the apex of the triangle. From the chart, you can see that the apex crosses the Fibonacci level near .9884 sometime in late June or early July. Based on this assessment, the U.S. Dollar/Canadian Dollar could remain rangebound for a few more months.

Traders often get agitated while a market is consolidating, but there is nothing that can be done at this time as long as the Bank of Canada and the Fed continue to give mixed signals. That is unless you like to trade ranges until a breakout occurs.

Obviously, the USD/CAD can break out at anytime before reaching the apex, but it seems to be on a clear path to remain inside the triangle until time is up. Around the middle of May, the downtrending Gann angle or upper resistance line of the triangle crosses the 50% level at 1.0031. This marks a time and price area where under the right conditions, theUSD/CAD can breakout to the upside. If this breakout doesn’t occur, then the currency pair is destined to remain inside the triangle until the chart pattern is completed in late June or early July.

From a fundamental standpoint, until the Bank of Canada decides to begin raising interest rates or the U.S. Federal Reserve makes it clear that interest rates will remain low until 2014; the USD/CAD will remain rangebound. Next week the Bank of Canada releases its monetary policy report. This decision could move the market. So while a triangle pattern can cause a trader to look elsewhere for action, it should be reiterated that this chart pattern often acts as a transition between sideways to volatile trading. Traders should keep an eye on this currency pair because it may be setting up for a strong move.


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