USDCAD rose to a one-month high of 1.2752 as it continues to extend the bounce from the two-year low of 1.2413. The price action turned bullish in the short-term since the rise from the July 26 low and it appears that a base may be developing around the 1.2400 area. Daily momentum indicators are bullish – MACD turned back up and RSI rose to break above 50.
Prices reached the 1.2700 handle and are testing the first major retracement level of the decline from 1.3793 to 1.2413. This 23.6% Fibonacci level is at 1.2737. A daily close above it would target the next level (38.2% Fibonacci) at 1.2939 to open the way towards the key 1.3000 handle. Reaching the 1.3100 level and 50% Fibonacci would see some easing in downside pressure. But the market would need to rise above the 200-day moving average (MA) and 61.8% Fibonacci at 1.3263 to see a shift in the recent downtrend to a more neutral bias.
Near-term support is expected at the key 1.2700 area and at 1.2650. From here a deeper decline would target 1.2500 and then the two-year low of 1.2413. Breaking below this point would see a strengthening of the downtrend.
In the bigger picture, the crossover of the 50-day MA below the 200-day MA on July 13 gave a bearish signal. Meanwhile, the 50-day MA continues to point down, highlighting the overall bearish outlook. While the short-term technicals are bullish, clearer signals are needed in order to see if the recent bounce is a mere correction of the underlying downtrend or if it is the start of a shift in the trend.