By: Mike Kulej
The Canadian Dollar had another big day on Wednesday, especially in relation to the US Dollar. The exchange rate between these two currencies dropped to 1.0060, before closing for the day at just under 1.0100. This late day bounce could be a hint that a trend reversal is imminent.
During the last few months, starting in May, the USD-CAD was in the general 1.0100 area on number of occasions. Every time it changed the trend direction from bearish to bullish. The main difference this time is that the low reached on Wednesday undercut all the previous price extremes.
However, the weaker closing suggests that the sell off maybe running out of steam. Other circumstances of breaching 1.0100 are very similar to the preceding events. When the Stochastic indicator is plotted on the daily chart, it shows oversold value at all previous lows. Right now, its reading is very low, as well, meaning that the recent history could repeat itself and the USD-CAD might rally from here.
One more piece of the puzzle is missing, though. The last candlestick is not a reversal pattern, even if the closing was not particularly strong. A bullish candlestick is needed to confirm the possibility of a reversal. This could be a harami, a piercing line, an engulfing line or one of the multiple candlesticks patterns.
For the moment, it is not known, but the market should provide the answer very soon.
