USD/CAD rebounds strongly above 200-day SMA
2023.05.12 05:09
USDCAD has been generating a structure of lower highs after peaking at the 2023 high of 1.3860 in mid-March. Although the pair managed to bounce off its May low and reclaim the 200-day simple moving average (SMA), the developing bearish flag pattern is indicating that the price could soon experience a bearish breakout.
The momentum indicators currently suggest that despite the recent bounce, near-term risks remain tilted to the downside. Specifically, the RSI rebounded but failed to cross above the 50-neutral mark, while the MACD is holding below zero and its red signal line even after gaining significant ground.
Should the recovery resume, initial resistance could be met at the 1.3552 barrier. Breaching that region, the pair could advance towards the April peak of 1.3666 or higher to test the 1.3700 psychological mark that held strong in December 2022. Further advances could then cease at 1.3805.
Alternatively, if the price reverses lower and dips beneath its 200-day SMA, the April support of 1.3405 could act as the first line of defense. Should that floor collapse, the pair could descend towards the May low of 1.3314 before the 2023 bottom of 1.3262 gets tested. Even lower, the November 2022 support of 1.3225 may prove to be a tough one for the bears to overcome.
In brief, even though experienced an upwards spike and crossed above its 200-day SMA, the technical indicators have not yet turned to the bullish side. Hence, for the rebound to strengthen the pair needs to surpass the restrictive trendline formed from its recent lower highs.
