USD/CAD again moved sharply higher early this week as concerns among forex traders over the Euro and Eurozone stability prompted a flight to quality that favored the Greenback. This rally went as high as 1.0748 and came after a period of consolidation at lower levels after the previous sharp spike seen the previous week that extended the rate’s correction as far up as 1.0742.

Furthermore, this second spike was confirmed by the 14-day RSI, which briefly went into overbought territory. Nevertheless, the key indicator has since returned into the neutral zone and now comes in at 65.

In addition, USD/CAD has now again broken above its 200-day Moving Average that now comes in at 1.0489, effectively neutralizing the medium-term outlook for the pair since the key medium-term indicator’s slope has now begun to flatten out from its prevailing downward direction.

Nevertheless, the end of this week saw some retracement in this fresh rally after Friday’s Canadian Retail Sales numbers showed considerable buoyancy on the fundamental analysis front for Canada. The primary number came out at an impressive 2.1% increase, versus the far more modest 0.2% increase expected. The Core Retail Sales number was similarly strong at 1.7% versus the 0.5% rise expected. Also, the important Canadian CPI inflation data came out slightly firmer than expected at 0.3% for the headline number and 0.3% for the Core figure on a month on month basis.

Currently, the hourly charts are showing a potential double top formation in the 1.0745/8 area, with a neckline at 1.0612 that now seems to have broken and in the process has set up a short-term target of 1.0479. Still, any lower levels seen should present a near-term buying opportunity for USD/CAD, especially if the rate closes the week above its 200-day Moving Average at 1.0489.

The completion of this very short-term double top formation could see USD/CAD trade lower in the near term as the market squares long USD/CAD positions ahead of the weekend and develops the nerve to take it up past the 1.0748 area for yet another corrective rally higher.

In terms of waves, this next rally should unfold the final leg of a C-wave that begun at 1.0109 and should unfolds toward the wave equality objective with the initial A-wave that went from 0.9929 to 1.0742. This initial target for the C-wave comes in at 1.0922, with a subsequent extension to the 1:1.618 Fibonacci projection target at 1.1424 also possible.

Overall, this fundamental and technical scenario argues for a forex trade idea of buying USD/CAD on a dip down to the 1.0500 region, with a stop below 1.0450 for a move back above 1.0748. Initial take profit levels should be placed before 1.0922.

Note: Past performance is not indicative of future results.