USDCAD Chart Setup: Bull Pennant May Lead Pair Higher

Sometimes the simplest charts show the best opportunities. No need for any momentum oscillators or other fancy tools here. Take the USDCAD chart for example. The USDCAD is a currency pair (U.S. Dollar and Canadian Dollar) which represents how many Canadian Loonies it takes to buy one dollar. The pair started tracing out a well defined bull pennant on the USDCAD chart at the beginning of February, within the context of a stellar run higher since last July.

Note that a bull pennant characterizes a period of controlled profit taking in which demand is too strong to allow the market to pull back very much. Once selling from short-term traders is absorbed, the underlying uptrend resumes.

As you can see on the USDCAD chart below, Friday’s rally pushed the currency pair to the upper barrier of the pennant, suggesting that it may be ready to break out of its recent consolidation. This is a nice “long” setup because you know where you’re wrong (beneath the lows of the past two weeks around 1.24) and you know roughly where your target/exit point is (chart resistance at about 1.35 taken from the lows in 1995 and 1996).

While that’s a great target to keep in mind, I generally prefer some kind of trend following technique as an exit strategy since markets often turn before technical resistance levels are reached. You can consider incorporating a moving average or moving average crossover for this purpose. It’s always good to have some mechanism that takes your head out of the process of deciding when to close a trade. Discipline is always key. Thanks for reading.

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USDCAD Chart – U.S. Dollar / Canadian Dollar Forex Pair

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Follow Chris on Twitter:  @ChrisBurbaCMT

No position in any of the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.