- USD/CAD’s key SMA studies have produced a death cross.
- SMA crosses are lagging indicators and often trap traders on the wrong side of the market.
USD/CAD is trading near 1.3330 at press time, representing a 0.15% decline on the day. The bulls failed to clear the psychological hurdle of 1.34 on Monday.
The daily chart shows the 50-day simple moving average (SMS) has crossed under the 200-day SMA, confirming the so-called death cross, a long-term bearish indicator.
The death cross, however, is based on backward-looking averages and tends to lag prices. As such, it is often considered a contrarian indicator.
In addition, the slow stochastic has created higher lows contradicting lower lows on the price chart. That bullish divergence is suggestive of the ebbing of downward momentum. A similar sentiment is being echoed by the long tail attached to the previous week’s candle.
All in all, the odds appear stacked in favor of a stronger corrective bounce, possibly to the 50-day SMA, currently at 1.3496. The case for a notable bounce would weaken if the spot finds acceptance under the Aug. 5 low of 1.3233.