The downtrend on the USD/CAD has reached an important level for the bears, who have controlled recent market sentiment. Because the daily chart has been in a wide distribution phase since May, the pair has continued to predominantly trade between resistance, just below 1.0700, and support at 1.0100. This 600-pip range leaves plenty of opportunity to trade strength and weakness as the pair bounces between the floor and the ceiling, which has held throughout summer.

The downtrend on the 240-minute chart represents the weakness seen since the USD/CAD peaked at 1.0673 on August 31. The downtrend has carried the pair to the lower area of the sideways range on the daily chart, where buying tends to begin with the perception that the pair is oversold.

Because of its proximity to the bottom of the daily range as well as the current test of the Channel Down’s intraday downtrend line on the 240-minute chart, 1.0340 is an important level to watch. Should the bears continue to control market sentiment and momentum, prices will exhaust and continue lower. However if the bulls—emboldened by the fact that the market has reached the daily range’s lows—begin buying in anticipation of a rally higher, look for a pattern reversal.
With the ten-bar Initial Trend reading indicating a strong bearish trend, a steep climb between recent highs at 1.0350 and 1.0374 may lay ahead for buyers.