Breaks above key trend line after strong Canadian GDP data

• USD/CAD has broken a key trend line and is likely to reverse the trend.
• There is a possibility that it could start trending higher if the break holds and prices move above 1.3520-25.

USD/CAD is decisively breaking a key trendline for the downtrend it has been in since early August.

The pause comes after stronger-than-expected Canadian GDP data strengthened the Canadian dollar (CAD). It likely means the short-term downtrend is reversing, although more upside is needed for confirmation.

USD/CAD 4 hour chart

The trend break was accompanied by a rise in the Relative Strength Index (RSI) momentum indicator outside its oversold zone, which provides a buy signal. This indicates either a larger extended correction or a complete reversal of the so far bearish trend.

A close above 1.3520-25 and the trendline would cast doubt on the bearish trend and could indicate early signs of a reversal. Such a break could see the pair move up to 1.3593. A move above the latter would give a surer sign of a trend reversal.

If the break fails to hold and prices pull back and close below the trendline, the bearish trend could extend lower. The next bear target is located at 1.3380 – the swing lows of October 2023 and January 2024. This is followed by the bottom of the range at 1.3222.