Technical indicators point to further upside for USDCAD

On Nov 27, 2024, the USDCAD pair surged to a high of 1.417, its highest level since May 2020. Underpinned by a breakout from a key symmetrical triangle pattern that had been forming since mid-2022, the bullish spike suggests further upside for the pair. After peaking around 1.47 in March 2020, the USDCAD experienced a steep decline, bottoming around 1.20 in May 2021, before starting an uptrend that remains intact at the time of writing on Nov 28.

On the weekly chart, the USDCAD consolidated in a symmetrical triangle pattern - a classic pattern that typically suggests a continuation of the prevailing trend upon a breakout. The symmetrical triangle began forming in late 2022, with price action steadily narrowing within the triangle’s converging trendlines. This structure reflected a balance between bullish and bearish forces, with neither side gaining a decisive upper hand until recently.

The breakout from the triangle pattern occurred on Oct 20, 2024, as the USDCAD decisively surged above the upper boundary of the triangle. Such a breakout is typically interpreted as a bullish signal. This was followed by a retest of the former resistance line, which successfully turned into a support level. This price action confirmed the breakout’s validity and reinforced the bullish outlook for the pair.

From a technical perspective, triangle breakouts are significant as they often herald the start of a strong directional move. The measured rule for triangle patterns - projecting the height of the triangle at its widest point from the breakout level - suggests a potential long-term target of around 1.5000 for the USDCAD pair.

The next target lies at 1.467, a historically significant resistance zone that was previously tested in January 2016 and March 2020. This level represents a key hurdle, and a sustained break above it could open the door for further gains towards the measured triangle target near 1.5000.

Given that this analysis is based on a weekly chart, the movements described reflect a long-term perspective. While trading on such high timeframes can be challenging due to extended holding periods and potential drawdowns, they provide insights into the broader market trend. Traders can use this directional bias to align their shorter-term strategies with the prevailing long-term trend.

The recent breakout from the symmetrical triangle pattern and the subsequent retest of support highlight a strong bullish momentum in the USDCAD. With historical resistance levels in sight and a clear long-term uptrend in place, the pair could offer compelling opportunities for traders who align their strategies with the broader market direction.

The writer is senior strategist at Phillip Nova