The USD/CAD currency pair, or the Loonie as many like to call it has been trading sideways over the last few days. However, that pattern has recently changed to resemble a bearish wedge on the 4-hourly chart.

The recent sideways movement came following a major rebound that broke out higher of a downward trending channel. Some have likened that rebound to a mere ‘dead cat bounce’, which based on the pair’s exchange rate movement since the start of the month has proved to be true.

The rebound lacked the necessary momentum to take the pair beyond the immediate key resistance level of about 1.2900. The current trader indifference suggests that a reversal of that rebound could be next. So, what are the possible scenarios that traders should be looking at going to the week of May 7-May 11?

To begin, the Canadian dollar continues to gain strength over its counterpart the USD. The USD also appears to have completed its short-lived bullish run fueled by impressive economic data in April while the recent data failed to trigger further upward movement. And now, all that traders can look at are the events in the Canadian economy.

The loonie’s immediate future looks bearish with the current support (S1) of about 1.2800 already being tested. And if, it is breached as highly predicted, then traders could soon start looking further down at support level (S2) at 1.2700 as the next resistance zone.

The last time the 1.2700 trading zone played a key part in the market was last year Nov-Dec, when it was a major support zone. In fact, if the trend reversal turns out to be a major one, then traders could look as far down as the previous turning point that triggered the rebound in April.

That would take place around the 1.2600-1.2550 region at support level (S3) subsequently erasing the gains made over the last three weeks.

However, if for some reason the current sideways movement triggers an unlikely bullish run, then traders should look for (R1) at about 1.2900. This zone has proved to be a key player over the last few trading sessions helping in the formation of the sideways trending channel.

Breaching this level will leave traders with a couple more bullish targets in the short to mid-term range. The first one takes place at resistance level (R2) at 1.3000, which also happens to be a major psychological level for the pair. The USD/CAD currency pair has broken this level on one occasion since July last year, that major breach coming in March 2018.

Therefore, if the Loonie was to breach that level for a second time this year, then the March high of about 1.3120 would be the next target. However, the psychological level 1.3100 could hinder the pair from climbing that high.

What’s happening on the weekly chart?

Looking at the weekly chart, the picture appears to be pretty much the same. However, this time the pair appear to be caught in a downward trending channel, supposedly forming a bullish flag.

Normally, this type of flag is supposed to trigger a continuation of the previous upward trend that forms the flag pole, but for this to happen, the flag formation must be complete.

Based on the weekly chart above, it looks like there is still some downward movement to take place, which will be characterized by a series of lower highs and lower lows. This could happen in the next few weeks, and then maybe, we will see a resumption of the previous trend as the flag formation is completed.

As such, in the immediate to mid-term future of the USD/CAD currency pair, the bearish trending channel that forms the flag should continue. Traders will be looking at (S1) at 1.2500 for the next mini rebound. This rebound could take the pair close to 1.2900, which will be a lower high to the previous high before dropping towards the 1.2300 level. If this support level is breached, then traders will look at 1.2000 psychological support zone for the next major rebound, which could also be the point that triggers the resumption of the previous major bullish trend.

In summary, the Loonie USD/CAD continues to look bearish going to next week and will oil prices firming up, the USD is expected to bow to the pressure before the market can technically trigger a major rebound for the pair.