Pulling back within a downtrend

• USD/CAD is undergoing a correction within an established downtrend. 
• The RSI is oversold and if it exits the zone it could indicate a higher correction is likely unfolding. 

USD/CAD is pulling back whilst unfolding a down leg within a long-term range bound market. Both the medium and short-term trends are bearish and given “the trend is your friend” the odds favor more downside. 

The Relative Strength Index (RSI) momentum indicator is in the oversold zone, however, and the pair is pulling back. If the RSI exits oversold and re-enters the neutral territory (on a 4-hour closing basis) it would provide a buy signal and indicate an extended correction higher. Such a correction is likely to return to the trendline before rolling over. 

USD/CAD 4-hour Chart

Once the pull back ends the downtrend is likely to take over again, pushing the pair lower. Added bearish confirmation would come from a break below 1.3441. 

The next bearish target is situated at 1.3380 – the swing lows of October 2023 and January 2024. This is followed by the bottom of the range at 1.3222. 

A close above 1.3520 and the trendline for the move down in August would bring into doubt the bearish bias and could indicate early signs of a reversal. However, a break above 1.3593 would give a surer sign of a reversal.