Our dollar recently broke out of a large symmetrical triangle formation. Triangles are “consolidation” patterns. In a symmetrical triangle’s case, the market has changed from a widely volatile up/down pattern (the fat, left side of the formation) to tighter, less volatile price movements. As technical analysts, we know that markets spend most of their time trending up or down. Lower volatility doesn’t last forever. The market hates stagnation- it will break out in one direction or the other at some point and begin to trend. The upside breakout from the symmetrical triangle earlier this year is likely a signal for more upside to come for our loonie.
The upside movement through the 50 day and 200 day moving averages also signal a likely change in direction to the upside. Classical chart pattern analysis suggests that the prior levels of volatility, measured by the height of the left side of the triangle will return upon a breakout. This triangle’s maximum height measures from about 94.50 to 102 – implying about 7.50 upside from its breakout. The breakout occurred at around 99, meaning that the upside projection for the loonie is 106. This coincides nicely with overhead resistance – marked on the chart with a dashed pink line – at that same level.
If you are a Canadian investor with a high exposure to the US dollar, this movement would negatively impact your portfolio. Something to keep in mind.