USDCAD short drop before a mega rally?

[Mercury]

So it's likely to be a bit boring waiting for stocks to top out before that crash I'm tracking and other associated moves.  During this time I am focused short term on FX and while I wait for GBP and EUR to hit turn zones in a retrace rally I was drawn to this pair, one I track but have not been focused on recently.

So starting from the beginning, the long term picture, which is still the same for me as it have been for, well 5 or 6 years now, is that this pair is in a long term bull market.  If the current retrace move (monthly chart) is a Pennant, and conventional charting dictates that this kind of formation occurs at the halfway point in a rally, then the current bullish motive wave should continue on up to around about the 18,000 mark (this being a wave 3), after which we would see another significant retrace and a final wave 5.  The theoretical top is just the Fib 162% extension and is of no real bearing at present.  The alternative scenario is that the Jan 2016 top and spike (pin bar) was a wave C retrace end and the market hammers down but the Pennant break belies this scenario, for now.

So what's next?  Well we have had a Pennant breakout, after a retrace to the Fib 50% (Sept 2017), which ended with a very strong pin bar reversal and 1 quick breakout zone failed retest but I am still wanting another EWT1-2 retrace before the wave 3 rally really gets going so another retest of that breakout zone, or maybe even a retest of the Pennant line, is on the cards for me.  Weekly chart oscillators peaked out overbought at the wave 1 (blue) top in Dec 2018 and since that there has been a period of whip lash consolidation.  Looking at the Daily chart I see a potential complex retrace move emerging (Lots of A-B-C whiplash) that should end with a strong bearish move to terminate the retrace.  The whole of the Bullish move up to date has been contained in a set of parallel channel lines, which if broken to the Bearish side will bring up that sharp move down.  I believe this move is already in play and I am Short from the wave 2 (Brown) area (hourly chart) and stop protected with close stops.  It looks like this pair may be preempting EUR, AUD and GBP.  While the Pennant breakout zone is a likely retrace ending zone I think the Fib 76/78% may also be an interesting option.  While I am tactically Short it is the eventual massive Long play I am keen on catching, but a Short will keep me interested in this pair.

 

[Mercury]

Got the short term on this pair wrong but the longer term picture remains.  Recent price action has followed a complex retrace pattern and in the last few days may have topped out at the Fib 76% zone.  Might still get another small leg up but there is decent NMD support a turn now or in a few days, after which a fairly extensive Bearish move should be on the cards.  This, plus something similar on USDJPY plus the set ups on AUD, GBP and more importantly EUR suggest that a period of USD weakness, as opposed to other currency strength, is on the cards.

[Mercury]

As with the other pairs I have been tracking USDCAD looks to have peaked in a Wave B and descended into a wave C, with the first hard 1-2 retrace relief rally complete.  As with GBP I expect the inverse on this market.  We had NMD at the Wave B and now another at the wave 2 (brown).  Perhaps a short term 1-2 before the wave 3 really gets going.

Sell the rallies for me.  I am Short off the Wave B and off the wave 2 turns.

 

[Mercury]

Thinks have turned out a little more complex on USDCAD as the consolidation morphs into a complex retrace (see Daily Chart.  Now looks to have concluded with a bounce back off the Fib 88% resistance zone, with NMD, and put in a small 1-2 retrace before heading down.  Need to see a new lower low and break of the lower consolidation Triangle line to confirm for me but I am Short off the resistance zone turn with close stops.  With USD showing weakness across the board and Oil potentially about to rally, and if it does, then this pair should go Bearish, as my analysis shows. 

[Mercury]

USDCAD has been quite whiplashy of late, you would have to say it is in consolidation but if you are selling high and holding close stops then no problem.  Another break lower today, will this one stick and break lower support?

 

[Mercury]

Yet another leg back up in consolidation but this time a higher high, which has created a complex 1-2 retrace pattern (see 4 hour chart below).  This afternoon this market hit the Fib 88%, quite normal with these types of retraces, which offered a very low exposure Short.  The market duly turned and has run down fast, offering a few additional Short points and is currently continuing to trend down.  A breakout of the daily trend-line would be a good bearish sign.  Note, big picture, this is a retrace move so could have some whiplash in it yet. 

[Mercury]

As mentions in my Brent Crude post just now, if USD does go through a period of weakness and Oil does rally then those 2 major drivers of USDCAD should result in significant CAD strength (i.e. USDCAD bearish move.  The market moves of late certainly bear this out and now this pair is at a critical juncture.  A breakthrough to the downside here suggest that significant bearish move is on the cards.  The benefit of entering early at the top of the consolidation zone is obvious but going Short on the breakout with stops just above (sufficient to guard against a retest) is also worth considering.  Note: not all breakouts retest.  If the EW 1-2 has occurred inside the consolidation zone the breakout can be hard and fast and never look back. Wave 3s are like that and I think this is a wave 3.

[Mercury]

This pair remains in a trading range, despite the fakeout and rally .  The recent turn was a lower high and the fakeout was a lower low.  There is NMD at the recent top and a potential 1-2 bullish retrace that looks to be setting up another round down.  I am short off the 1-2 with close stops just above, having taken profits of the previous 2 round trips.  Will this one break through to get on with a Bear move as USD sets off on its bearish retrace?

 

[Mercury]

USDCAD continues it tortuous consolidation with lots of whipsaw action.  The price action still looks like a complex retrace trapped in a range to me but this market has arrived at a critical juncture this morning with a short term double top just posted.  If the market rejects a breakout to a higher high then the retrace move remains intact and a sharp drop should ensue.  However a breakout would indicate that the wave B bigger picture retrace/consolidation is not yet done and more upside is on the cards for a while.

This price action is not surprising given the current dithering of USD (DX) and Oil weakness.  This morning we have seen a bit of a short term rally on DX and significant drop on Oil, bullish for USDCAD.  With Oil looking set to drop further and in a sustained fashion a Bearish move on DX is needed for USDCAD to drop from here.  Interestingly DX, EURUSD, GBPUSD are also are critical junctures for a potential trend change for me.  Should resolve soon enough.

   

[Mercury]

My short term alternative scenario has triggered with a higher high BUT price still remains within the Daily chart Triangle consolidation.  I am still tracking a turn and break out to the downs side on this pair to set up a much longer term rally.  There is very strong NMD on the Daily chart and a good price action set up for a bearish move.  This matches my current views that USD (DX) will go through a medium term Bearish phase and also that Oil may go through a short term rally.  I am full Bearish Oil long term and Bullish USD long term, which is why I believe any Bearish move on this pair is counter trend.  However, IF USD breakout to the upside in the coming days then this pair will rally hard as Oil drops.  That is my alternative scenario.  I remain open to trade either eventuality.  

 

[JamesIG]

May be of interest to some - USDCAD covered by JM today

[Mercury]

Nice short term drop through a potential ending diagonal (narrowing channel) with a failed retest.  Might need a push on from a Bearish USD to stimulate a lower low.  There are a few support zonws below to clear before this one cranks the handle.

[Mercury]

This pair is confirmed in a Bearish medium term phase for me with a classic narrowing channel breakout and retest offering me a perfect Short signal.  Subsequent price action carried on down quite fast breaking a Daily Triangle and now Weekly channel support line.  A small 1-2 offered another Short opportunity, which I would have taken had I not be focused elsewhere.  I expect this pair to move down in a fairly fast wave C now (watch out for a retrace flag at halfway).  I will be holding my existing shorts and not adding but only because I see greater potential profits elsewhere.

[Guest davidbrister]

Do you think it will rally back up to the 1.3358 mark where it was before the big drop quickly or just slowly? 

This mornings chat.

[Guest davidbrister]

actually a lot of the FX charts had that big drop last week, was there some event that caused it?

[Caseynotes]

4 hours ago, davidbrister said:

actually a lot of the FX charts had that big drop last week, was there some event that caused it?

Increasing prospect of US interest rate cuts signaled by the Fed as well as increasing prospect of further QE signaled by the ECB.

[Mercury]

I assume you were addressing the question to me @davidbrister, if you want a quicker response you should tag the person you are addressing, I look at the Forum infrequently as I am not a day trader.

In term of a pull back, I see 3 possible areas if resistance (3 red lines) with a retest of my weekly channel line the most likely but price action will reveal this in due course.  If Oil takes a bearish move temporarily then CAD might take a similarly bearish hit (i.e. USDCAD rallies) or alternatively USD rallies a bit before plunging.  A break below the recent low, with USD going Bearish (see DX) would be the alternative Short signal for me, regardless of Oil movements.

The main reason FX pairs are moving at present is that the USD is weakening (check my DX thread).  This is a cyclical factor, regardless of news (which I don't follow, all to easy to say why something has happened but post hoc rationalisation is often wrong - Post Hoc, Ergo Propter Hoc!).  I prefer to focus on price action and eliminate other noise, this is simply my methodology, news following seems to work for others - ya pays yer money the takes yer choice...  Markets move in waves - fact; USD has been on a rally for some time and is simply due a counter trend move.  This is about sentiment.  If you look at the COT data you will see that a number of the key FX pairs were heavily bullish USD around about where the turn happened (EURUSD neg 112k and USDJPY neg 101k in particular).  It is often the case that when the speculators (non commercials in COT terminology) are too extended one way or another the market turns.

[Guest davidbrister]

@Mercury, yer it was asked of you mate, sorry, rather new here and still learning the tricks of the forum.

Thanks for your response.

What does COT stand for please?

[Mercury]

COT is Commitment of Traders.  The US Commodity Futures Trading Commission produces this data every week.  It is based on CoB each Tuesday but published every Saturday.  It basically shows the volume of futures and options Longs and Shorts split by market participant types and the net change week on week.  I use the combined Futures and Options reports and am interested in the net Long/Short position of the non commercials.  You can get data for commercials, non commercials and others.  There is a lot of data in there but I focus only on the Commercials and Non Commercials.  The Former is industry (e.g. Oil companies for Oil, miners for copper etc).  For FX it is corporates seeking to hedge their businesses currency exposure in normal operations.  The Non Commercials are the financial services organisations, many of them are trend following hedge funds.  As a contrarian I am looking for when the Financials are overextended at a relevant turning point (based on my analytical methodology) and seek to go the other way on trading signals.  This is a scenario supporting analysis rather than a trading trigger, which is why I referenced it as support for a major swing to counter trend on USD in my answer to you question.

See link below to the relevant website.

https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm

[Caseynotes]

15 minutes ago, Mercury said:

See link below to the relevant website.

https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm

Since the COTBase web site started a registration system for viewing charts this site is the next best for charts.

https://www.barchart.com/futures/commitment-of-traders

 

[Guest davidbrister]

MMMM far to involved, its 1 thing to come up with a trading plan/strategy and attempt to make it work, but over crowding ones brain with analytical data of others ideas and probability combating my own thoughts, its any wonder i have moved to an Auto Trading program, my mind relaxes so much more, but thanks @Mercury and @Caseynotes.

Those are pretty coloured lines at the bottom of your graph Casey, im not even going to try and understand nor do i feel the need to know the how and whys of how they relate to the chart above it.

Cheers Guys!! 

[dmedin]

Well on one hand EWT seems an awful lot like 'making the facts fit the theory' but on the other, there can be no automated system that is always profitable otherwise everyone would jump on the bandwagon.  I think everyone is really just a gambler, each with their own 'system'; but some are more informed than others.

[Guest davidbrister]

3 hours ago, dmedin said:

 there can be no automated system that is always profitable otherwise everyone would jump on the bandwagon.  I think everyone is really just a gambler, each with their own 'system'; but some are more informed than others.

Skepticism and fear is what stops people jumping on the band wagon, But when my auto trader makes an actual loss i i will let u know, till then another $30 over night and a total of $412.02 in 19 days.

and i agree on the gamblers with different system.

[Guest Albeegh05]

2 hours ago, davidbrister said:

Skepticism and fear is what stops people jumping on the band wagon, But when my auto trader makes an actual loss i i will let u know, till then another $30 over night and a total of $412.02 in 19 days.

and i agree on the gamblers with different system.

How do i get this auto trading software

[Guest davidbrister]

@Albeegh05, you can check this thread out and i will send you a PM.

Cheers

DJ

 

[Mercury]

If USD weakens and Oil strengthens what then is in store for USDCAD?  As both of these scenarios is bullish for CAD one could look for the pair to continue it's Bearish path with some momentum.  A possible small relief rally has hit my first resistance level and rebounded back down.  Until there is a break of the recent low there is always a chance that we could see an extended consolidation/retrace period that carries another leg up to the next resistance level but for now it seems set for a fall to me.  The negation of this set up to another leg up is a break of the recent high (13310), which amounts to a very low exposure trade in my book.

[dmedin]

Good luck with that.  The only thing worse than day trading indices is day trading forex.  The quickest and easiest way to lose money.

[Mercury]

Which is one reason I don't day trade.

Alternative scenario played out with a larger scale A-B-C retrace in operation.  Next potential turning point is the Weekly chart channel line retest (13340-80).

 

[Mercury]

USDCAD enters my next resistance zone and bounces back down.  I have a breakout and potential failed retest on a weekly channel line.  For this to hold it ought to close below at the end of play today (being the end of the week).  Might not be quite there yet but the signs are growing for a reversal and continuation of the Bearish move.  Other pairs are also approaching important turning points and DX is also overall at or near a critical juncture.  Conventional wisdom might be to wait for "news" in the form of FOMC next week but by then it may be too late and the news hounds will be talking about how the market had already priced things in, or other such platitudes.  I prefer to let price action decide.

On this one, and related markets, we may see another leg up or we may see a drop from here, ya pays yer money etc etc.

[Mercury]

Similar to other USD pairs (and DX) this pair has retraced back to the Daily Channel line to put in a failed retest and drop away.  The rebound has been particularly fast on this market though, which could offer a leading indicator for others.  A break of the near term support will be compelling.