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USDCAD inverse relationship with Oil


Mercury

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While leaving Oil and stock indices to do their thing I have been having a look at FX.  USD volatility due to the Fed seems to dominate at present and the EUR and GBP crosses are in a difficult W3-4 place with whipsaw action that will kill ya.  AUS and CAD are a bit different, thought still impacted by USD volatility of course but in the case of AUS mining seems to be a bigger factor and for CAD it is Oil.

 

Given that last I thought I would share my analysis on USDCAD to see if anyone has a view.  Having taken some trades short since the turn I have been wondering if we really did see a W5 top or could this be a W3-4 retrace.  If CAD does track Oil and my analysis of Oil is correct that we have not yet seen the bottom then perhaps we have not yet seen the top of USDCAD.  At a minimum, if Oil is in a retrace back down with another leg up to go (not yet sure of that, we could have had the turn back down to W5 and true bottom) then surely USDCAD will rally soon?

 

On the Weekly chart it is clear that this pair has gone higher in the past and also we did not get a negative momentum divergence, which I would expect to see at a major turn, so perhaps this is still to come?

 

On the Daily a decent tramline has been broken but that is often the way with a W4 (as the W4 turn sets up the "real" tramline) and there is support/resistance just below the 62% Fib at 12850ish.  Note no Neg Mom Div on the Daily either at the possible W5 turn!  I have 2 alternative valid EW counts (a 1-5 and an A-B-C) and strong Pos Mom Div building, suggesting a rally is imminent.

 

On the Hourly I have a decent count on the final wave down 1-5 but where will it conclude?  I am waiting for a fresh lower low and Pos Mom Div at the turn back up, maybe at the support/resistance point (12850).  If I see that I will take a Long and hope for at least a decent rally if not a W5 high high on the Daily!

 

here are the charts, look forward to your thoughts:



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  • 2 weeks later...

While we are all waiting on Oil and Stocks to show their hand on medium/long term direction I was looking at this cross to get some clues on Oil.  There does seem to be a strong correlation here and some commentators seem to think we have seen the tops of this market but I am not so sure.  I can easily see another leg up to a higher high with strong Pos Mom Div on the Daily chart and unconvincing Neg Mom Div on the weekly at the previous high.

 

At a minimum I foresee a strong retrace and if this market does turn at, say the 88% Fib (brown line on the hourly) with strong supporting indicators set up then it would corroborate a turn down on Oil for me.

 

Anyone agree (why?) or got another position?

 



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I've read some stuff over the weekend about CAD being heavily linked to Commodities.  With carnage about to occur in Oil ( I believe). then USDCAD Long at the right moment could be a winner. Breakout from the wedge would offer a low risk entry to a profitable position...I would have to conclude.  Maybe entry around 12900 if price hit that( of course with a stop loss but that could be quite tight because it could burst out? ) would be a buy signal with an upside of 13100 with a three up? So 200pips? C

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Most price gaps are closed and when they are not that is a very strong signal of a trend change (or continuation signal, depending on where it occurs in the bigger picture).  At present I would be expecting these Doha gaps to be closed but that does not negate the trend direction they may be indicating.  An overreaction usually gets an opposing retrace but if the trend has just been signaled then that retrace (currently happening across may markets!) will turn and a more forceful move will ensue.  It is noteworthy that this turn back often happens in or around the point at which the gap is closed...

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Has USDCAD just turned?  Pos Mom Div has been building on the Daily for some time and now we have it on the Hourly as well.  Turn is at the Daily 50% Fib, also at support line, with a clear EW1-5 down from the last major high and a small 1-2 completing.  Worth a Short with stop below the recent low for me, especially with Brent Crude apparently turned down.

 



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