The USD/CAD pair has recently reached the top of a range that it has been trading within for over three months. At this critical juncture, the pair could either break out higher, signaling a new uptrend, or pull back down and continue the sideways trend it has been in. The current market conditions suggest that the odds slightly favor a continuation of the sideways movement, as the saying goes, “the trend is your friend.”
A bearish Shooting Star reversal candlestick was formed on the daily chart on Thursday, indicating a possible reversal in the trend. If Friday ends with a bearish red candlestick, it would confirm the pattern and suggest a deeper pullback is likely to occur. The Relative Strength Index (RSI) also entered overbought territory during the formation of the Shooting Star, adding to the evidence of a potential short-term trend reversal.
In the event of a deeper pullback, the USD/CAD pair could fall to the top of the range-within-the-range at 1.3790 initially. A further correction may lead to a move back towards the range floor at 1.3592 as the sideways trend continues. On the other hand, a breakout above the high of the Shooting Star candlestick at 1.3849 would indicate a breakout of the entire range and an extension higher.
Should a breakout occur, the pair could target 1.3910 as the initial level, which is the 61.8% Fibonacci extension of the range-within-the-range higher. The next target would be at 1.4000, which is the extension from the broader range using the April 16 high as the top. Traders will be closely watching for further price action to confirm the direction of the USD/CAD pair in the coming days.
