The USD/CAD has delivered a major move, breaking key technical resistance in December. This breakout led to a 3.1% rally, closing the year with multi-year highs. The move tested a critical pivot zone near the 2016 and 2020 highs, showing strong momentum.
A significant highlight was the breach of the median-line of a modified pitchfork, extending from the 2021 low. This advance has pushed prices into a low-tolerance range. Exhaustion points were seen near the 2016 high at 1.4990. Such levels have proven critical for USD/CAD's directional trends.
Retail traders’ behavior during this breakout was remarkable. Many attempted to fade the upward momentum, increasing short exposure. However, weekly momentum surged into overbought territory, breaking key resistance levels near 1.4098-1.4115.
Historically, overbought conditions can persist for a while before reversing. This serves as a reminder: strong momentum often leads to sharper trends. Yet, retail traders often misjudge these conditions, expecting sudden reversals.
Technical resistance near 1.4483-1.4538 remains a focal point for USD/CAD. This zone is defined by the 1.618% extension of the July 2023 advance and the 2016 close high. Additionally, the upper parallel aligns closely with this threshold, emphasizing its importance.
Support near 1.41 is critical for further advances. A close above the pivot zone is necessary to fuel another leg higher. If achieved, targets extend toward 1.4660/90. Traders should closely watch for reactions at these levels, as extreme sentiment readings often signal potential exhaustion.
USD/CAD's breakout is a testament to the power of technical resistance and momentum. While sentiment indicators provide context, they should complement core principles of support and resistance. For traders, maintaining a disciplined approach during such volatile conditions is essential.
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