A look at the USD Majors – USDCAD

**A Quick Disclaimer**
This article does include a discussion about entry and exit points using some, but not all of the indicators I look at.  This is for information and educational purposes only, as the trade entry point hinted at has already passed.  I am not a licensed investment rep, I do not currently hold a position in this pair at the time this is published.  Investing carries great potential risk, do so at your own peril.

 

With so much USD news this week, thought I’d dust off some old charts and see where we’re at on the major USD pairs.  Trying to get through one a night for the rest of the week, but will post as much as time allows.  Without further ado…

USDCAD

Starting with the forest before the trees, let’s take a look at the weekly.  Two glaring points I notice immediately, we have been consolidating against the 50% Fib retracement line between the 2002 high and 2007 low.  We have the makings of a long pennant pattern, similar to what we’ve seen a few times in the USDJPY chart over the last couple years, or certain commodities, specifically gold since its correction.  Trading ranges of this magnitude, and as part of this scale offer great opportunity for the short to medium-term trader.

usdcad wklyLooking at the same chart, with some different clutter, both the most recent low and high were unable to breach their previous counterparts, what we call an FTR, or Failure to Return, hinting at the consolidating pennant pattern mentioned above.

usdcad wkly 2So lets move in to a shorter time frame, the 4 hour chart (my personal favorite).  I’ve zoomed into the most recent high on the weekly, narrowing down from the past to the present, for those following along, we’re looking at the market activity underneath the words “lower high” in the chart above.  First, in the blue box we see the recent consolidation, as the bulls and bears were deciding if we would advance above the previous highs or not.  The bears won.  I then marked three other points on the chart that would dictate a good, and in this case almost perfect entry point for a short.

(1) This is where the bears overwhelmed the bulls, deciding it’s time to push the price lower.

(2) This is an important supply and demand point I use in determining an entry.  This is the last push the losing side made.

(3) This is the entry.  As you can see in this case it moved back up to the previous point almost exactly.  While point (2) is actually a range, as there are generally stop-loss hunters lurking, it is often surprising to hit this point so exactly, but we’ll take our occasional perfection when we get it.

usdcad 4hSo that brings us to an approximate conclusion, that the bears are in control on the longer time frames.  Now here’s where the fun part is.  Let’s give an opposing argument, because, well why not.  On the chart above we see negative divergence against the Relative Strength Index.  I’ve blown this up below.  This is a generally misused indicator, although it doesn’t have to be.  Since there’s plenty of good info out there about divergence, I will bypass the lecture, but simply say that I’ve learned from the wisdom of those far more versed than me, as well as my own experiences, that divergence generally hints at a break in a trend, and then a continuation.  Negative Divergence, (when the price is offering higher highs while the indicator it’s weighed against gives lower highs) does NOT mean price is going to permanently roll over, but instead will offer a correction followed by a continuation.  See below.

usdcad 4h 2I don’t bring this up simply to confuse, but instead drive the point home, that no one piece of information should be given sole custody of your decision-making.

Back to the point of this post, “where is USDCAD going?”  In Dow Theory tradition, we turn back to the longer charts, and the primary trend, and make our estimates.  If I were a betting man, (and a small percentage of me is, since a small percentage of my assets are in leveraged positions in the Forex markets), I would bank on an eventual primary-trend continuation to the downside.  Outside of candle-wick movements, I expect USDCAD to hold its pennant pattern.

I’d assume resistance, or take-profit targets at the levels indicated at the below chart.  Levels based off previously won battles in previous years, Fib levels, a little bit of Elliot Wave, and a proprietary predictive analysis model developed by a trader friend of mine.  All in all, I assume the pair will stay within the larger weekly trend channel, per Dow Theory emphasis on primary trend, offering great volatility and ultimately trading opportunity.  Remember to embrace the thing that most fear; volatility is your greatest asset.

usdcad 4h 3

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s