USD/CAD surged yesterday, after it hit support near the crossroads of the 1.2930 level and the short-term upside line drawn from the low of the 1st of October. Subsequently, the rate emerged above the downside resistance line drawn from the peak of the 6th of September, to eventually stop near 1.3070. Given that the rate is now trading above both the aforementioned lines, we would consider the near-term outlook to be positive.
That said, we would like to see a decisive break above 1.3070 before we get confident on larger bullish extensions. Such a move could initially pave the way for the 1.3115 barrier, marked by the inside swing low of the 7th of September. Another break above 1.3115 could encourage the bulls to aim for the peak of the 11th of the month, at around 1.3175.
Shifting attention to our short-term oscillators, we see that the RSI has topped slightly above 70 and moved back below that line, while the MACD, although above both its zero and trigger lines, shows signs that it could start topping as well. These indicators detect slowing upside momentum and suggest that a setback may be in the works before the next positive leg, perhaps for a test near the psychological zone of 1.3000, or the upside line drawn from the low of the 1st of October.
On the downside, we would like to see a clear dip below 1.2930 before we start assessing whether the bulls have abandoned the battlefield, at least in the short run. Such a break could confirm the rate’s return below the downside line taken from the peak of the 6th of September and could open the path for the 1.2885 zone. If that zone fails to stop the rate from dropping further, then we may see a test near 1.2855, a support defined by the low of the 4th of October.
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