By: Mike Kulej
Until recently, the Canadian Dollar had been one of the best performing currencies. It reached the parity level with the US Dollar and staged strong rallies in most of its other pairs.
However, it also became a victim of the so-called “Euro crisis”. Over last few weeks the CAD fell in relation to the Yen, the USD and, most recently, even against the European currencies. The USD-CAD in particular shows strong evidence of a possible longer-term bottom.
After reaching the parity level, the price returned to a resistance at 1.0775, creating what appears to be a solid ceiling there. Current price action suggests possible creation of an inverted head and shoulder reversal formation. Any pull back now, particularly to the 1.0250-1.0300 area, would confirm the right shoulder.
Since the market is slightly overbought, as indicated by the Stochastic Oscillator, chances for a correction from the current level are increased. A subsequent breakout above the 1.0775-1.0080 resistance should take the price to 1.1300 and perhaps even as high as 1.1600. These price levels coincide nicely with the Fibonacci extensions and, in case of the 1.1600 level, a previous important resistance.
