USD/CAD Forecast: Inverse Head And Shoulders Reversal Ahead?

USD/CAD sellers are having a tough time breaching the key trendline support today.

As of writing, the currency pair is trading at 1.2673; which is the support offered by the line drawn from the Sept. 15 low and Oct. 19 low. The spot clocked a high of 1.2917 (Oct. 27 high) and since then has been steadily losing altitude. Over that period, the currency pair has lost 1.88 percent.

So is the pair set to extend the decline? Technical charts suggest the odds of a dip below 1.25 are very low.

1-hour chart

In fact, the bullish price RSI divergence seen on the 1-hour chart above indicates the spot could actually defend the rising trendline support of 1.2673 and revisit the downward sloping 10-day MA level of 1.2772.

The 100-MA and 200-MA on the 4-hour chart still favor the bulls (slope upwards). The 4-hour RSI is oversold as well. Thus, the pair is likely to test resistance at 1.2713 (5-day MA), 1.2737 (4-hour 50-MA) levels.

However, the uptick could be short-lived, courtesy of the flattening of the Treasury yield curve and strong bid tone in oil prices. Also, there is merit in being cautious as the 100-day MA still indicates bearish bias (downward sloping). The 5-day MA and 10-day MA are sloping downwards as well.

View

A minor rally to 1.2772 could be seen today or on Monday.

Bearish scenario - Failure to hold above the rising trendline support of 1.2473/rejection at 10-day MA followed by a downside break of the rising trendline support of 1.2473 could yield a sell-off to 1.2530-1.25 levels. Note that the 50-day MA has bottomed out and currently stands at 1.2497. Thus, dips below 1.25 are likely to be short-lived.

Bullish scenario - A rally from the rising trendline support of 1.2473 if results in a sustained move above 1.2820 (Nov. 7 high) would open doors for a rally to inverse head and shoulders neckline resistance of 1.2950. A potential correction in oil prices could fuel the move in the USD/CAD pair towards the neckline hurdle.

Daily chart - inverse head and shoulders pattern