USD/CAD was into a corrective phase on the short term, it has decreased within a down channel, but the price action signals that the downside is completed and that the pair could develop another significant upside movement.
The pair has registered an impressive rally in 2020, the Loonie was punished by the oil price major drop, the COVID-19 epidemic has forced the global economy to slow down and the oil demand has decreased dramatically. The USD/CAD correction was natural and normal after the extended rally, but the outlook remains bullish and the price could give birth to another leg higher towards fresh new highs.
USD/CAD has decreased also because the USD was weakened by the USDX's impressive drop, the index has found strong support and it has bounced back, a USDX's further increase will signal that the USD will take the lead again and it drives the pair higher.
USD/CAD is trapped within a descending channel on the H1 chart, but a valid breakout from this chart pattern will validate another important upside movement. The price was rejected by the downside line of this pattern and now by the 38.2% retracement level signaling that the correction could be finished.
The pair has registered only a false breakdown below the 38.2% retracement level, but we still need a confirmation that it will resume the major upwards movement. I've drawn an ascending pitchfork to encapsulate the price, USD/CAD has dropped after a rejection from the median line (ML) and from the channel's upside line, but it has failed to reach and retest the lower median line (LML), meaning that the bulls are still strong.
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USD/CAD could resume the upside movement soon if it stays above the 38.2% retracement level, but only a valid breakout above the downtrend line, channel's resistance, will validate a significant increase. The median line (ML) will represent the next target if the downtrend line is taken out. I believe that a valid breakout above the upside line and a consolidation above the 23.6% will give is a chance to open long positions.
However, a broader upside movement will be confirmed if the price makes a valid breakout above the median line (ML) of the ascending pitchfork, we need another higher high to be sure that USD/CAD will pass above the 1.4667 previous high.
A potential increase will e invalidated if USD/CAD will stay within the down channel's body and if the price will make a valid breakdown below the lower median line (LML) and below the 38.2% retracement level. This scenario will take shape if the USDX resumes the bearish movement, so we can go short again from below the LML and below the 38.2% level.
