USDCAD short drop before a mega rally?

[dmedin]

@Mercury

I really enjoy your charts.  Do you find EWT helps you to predict the next swing?  I have to admit that I find all the nested As and Bs quite bewildering.  (But that's a limitation of my brain...)

[Mercury]

@dmedin I use EWT on long term charts to identify where we are (or may be) on a cycle and what is left on the journey (up or down) in terms of waves.  I use it on shorter term charts to zoom in on smaller waves within waves, which follow the same basic logic as the large scale patterns.  I do not use it to pin point a turn or to trigger a trade but having a valid EWT label structure is part of the support indicators I require in order to place a trade.  I also use it to manage my trades in flight by seeking to understand the likely patterns unfolding and either pyramiding or closing accordingly.

The As & Bs I think you may be referring to are those on my USDCAD Daily chart from previous post.  While the basic EWT pattern is 1-5 motive wave followed by A-B-C retrace and so on until there is a long term change in direction whereupon the pattern form reverses direction, the A-B-C retrace can follow multiple internal pattern structures.  In addition, while Wave As and Wave Cs generally tend to follow a 1-5 structure the Wave B has no such generality, often exhibiting a lot of whipsaw action thus making it the most difficult wave to trade.  This becomes even trickier in a so-called complex retrace, which is what I believe we have on USDCAD just now, in that all 3 waves can follow an internal A-B-C structure, rather than a 1-5.  Wave C could be either.  In this case I currently believe the Wave C is a 1-5, of which the 1-2 is posted.  Wave A was an A-B-C and Wave B a complex A-B-C of its own.

You can see all of this on the charts below.  Currently I am looking for another retrace rally but this could be either in play or will occur after another leg down, perhaps to the Daily Fib 38%.  Either way a retest of the Weekly channel line (purple) breakout or the line itself is my ideal scenario before another strong leg down.  Naturally, at this point I do not know how far down it will go but I have some likely points marked up already and will decide on that as the price action unfolds.  In order for me to decide a turn back into a rally phase is on the cards many factors will have to come together, including a credible EWT labeling for a retrace pattern.

 

[Mercury]

So USD has finally broken to the Bearish side and most USD pairs are trending accordingly but how far can this go and what happens next?  To make the most of a move I seek to identify the scenarios that may play out and for USD I see a period of Bearishness, several months perhaps, as stocks and bonds play out.  At present I am not convinced stocks have much more to go, maybe 3050-60 on S&P 500.  I am also not sure precious metals have broken out yet, although they could be driven up from here by USD weakness but there is bit to go yet before I would jump back on.  I am also a bit concerned about Oil bearishness as there is a bullish scenario too so not keen to add to my Shorts there yet.  So that leaves USD pairs and I am Long EUR and GBP, also a bit of AUD and Short USDCAD.  But I want to put my bets on the best medium term (these are all retrace counter trend moves rather than long term motives) return markets and for me that is GBP and CAD.  I see both of these markets as in wave C where as EURUSD is only in a wave A and doesn't have as much upside.

But let me look at the potential scenarios for USDCAD medium term.  Short term things are still as per my previous post (looking for and end to the short term rally to get short.

Longer term (monthly chart) I see the following technicals:

• Market bottomed out with a 1-5 wave in 2008 then put in 1-2 (or A-B) between 2009 and 2011 and ran up to the 2015 high in a 1-5 leading us into the current move.
• This move looks like a Pennant consolidation to me that broke out in 2018 on USD strength but didn't storm away and now it is in retrace.
• A bearish period could result in either a retest of the Pennant breakout zone or the Pennant line.

Looking at the Weekly chart for a bit more detail:

• There was strong PMD at Pink C, the likely end of the consolidation and Pennant
• Then a run up in a channel in a 1-5 form to a likely wave 1 (Blue), however it isn't a clear 1-5 and could be seen as an A-B-C as well so no help there.
• But the A-B (Green) was clear, especially on the Daily with a NMD) so we are now due a sharp 1-5 wave C (or maybe a more complex move but that's in the future).
• We have a breakout of the channel line, maybe we will see a retest before this market really gets Bearish.
• Bottom line is Bearish but 2 scenarios:
  1. Retest of the breakout zone (Fib 62%) on the recent rally before the market turns massively Bullish
  2. Retest of the Monthly chart Pennant line at the Fib 62% of the Monthly chart top before the market turns massively Bullish.

To decide we will have to await price action and watch USD but if other pairs are not going to run as strong what could make CAD run harder and further?  Well Oil bullishness could, so I am a bit concerned about where Oil might be going...

 

[Mercury]

Possible next support line and consolidation Triangle breakout occurring.  Only watch outs are that price is on the Fib 38%, a possible retrace rally point and there are a couple of important support lines in close proximity.  If price gets through these though there isn't much left to hold it up short of the 12,800 mark.  If USD confirms a current resistance turn and Oil continues its upward trajectory there is nothing to stop CAD moving further and fast against the USD.

[Mercury]

I have referenced USDCAD in a few of my recent posts so just to complete the picture on this thread.  I am not convinced this market has put in a sufficient 1-2 retrace, the EWT count favours another deeper retrace in my opinion. Price action at the end of the week suggests a wave 1 (light blue) turn with a pin bar on the daily and PMD on the 4 hour and 1 hour charts.

If USD (DX) does go another leg up, as suggested in my DX thread is possible, and Oil does go down for a while, as suggested in mt Brent Crude thread, then the two main forces (other than the Canadian economy and central bank policy itself) would be Bearish on CAD.  Hence I expect this pair to rally for a deeper retrace rally before resuming its Bearish medium term course.

 

[gautamhait]

On 20/06/2019 at 04:04, Mercury said:

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.

What's the news of gold sir ????

 

[Mercury]

Boring day for trading, just as well I have other things to occupy me, would hate to be siting in front of the screen all day today...  Just got an alert on USDCAD though and checked my charts to find that this pair have just poked through a significant support level.  Could be a breakout of consolidation here for a run lower.  Always a risk that this poke signals the end of the current move and a larger retrace so care is needed but one to watch and consider for a Short.

 

[Mercury]

So that poke through was a wave end and promptly rebounded, although not with conviction in my opinion.  There is PMD on the turn and several scenarios present, including a complete reversal but I will not cover that just now as it is more dependent on what USD overall does.  Assuming USD does stop and go Bearish again (if not all bets are off, literally) then for this pair it is a matter of when a related turn back bearish occurs.  There are several candidate turning zones to watch as well as watching USD overall.

 

[Mercury]

USDCAD well on its way to completing the indicated A-B-C retrace, where it will complete remains to be seen but for now looks like we are in for a bit of a rally.

[Mercury]

While I await developments on all my markets I am posting on USDCAD, which I have been quiet on for a while as things developed.  When I left it I was anticipating a bullish retrace phase and that is what we got.  Initially I thought it might be very short term but then realised we were looking at a potential complex retrace (lots of A-B-C whipsaw price action) so I cashed my Shorts and waited for the retrace.  Yesterday we may have seen the wave B (brown) top out with a pin bar, I took a spec Short at this point.  We could easily see another round trip (down/up) to test the weekly chart trend line (purple) and the Fib 62% as I still expect a final USD rally phase to set up a larger Bear move so consider this for stop placement.

 

[Mercury]

This pair did indeed bounce back off resistance and now my Short positions are covered at BE.  The move looks like a turn at this point and is supporting a wider general USD Bearish move to continue in due course.  I might expect the current 1H chart phase to continue down a but further but before any major bearish move I would ideally like to see a pull back relief rally, which would offer a good opportunity to get Short again.

[Mercury]

USDCAD executed a near perfect retrace off the recent bearish move and then fell hard in what is almost certainly a wave 3 of the previous wave B turn.  This is overall, I believe a medium term A-B-C retrace before a strong USD rally but that will take some time.  The current bearish move is likely to be the wave C (last move of the retrace, which could run and run).  The small scale retrace rally hit the Fib 62% and then rebounded back.  I am Short off the wave B turn (that was a speculative with low exposure) and now Short off the Fib 62% turn and will pyramid this one in a sell the rallies strategy.

 

[Mercury]

So that potential breakout to the downside never came and the market rallied back up to make a new high, just, but now, given underlying USD weakness (potentially) this pair may also have peaked and turned.  The Fib 62% overhead was not quite hit, nor the 2 trend lines so another leg up at least to these levels is quite possible but otherwise, if USD does fall, this pair could be set up for a strong wave C bearish move.

[Mercury]

This pair has been doin my head in for a while with a mass of whipsaw price action but the picture looks to be clearing now.  If USD DX cements its Bearish trend change and Oil does go into a rally then that is 2 major drivers for this pair to go bearish.  Add to that a possible turn at the Fib 76/78% and strong NMD on the 1H with NMD at this and the previous turn on the Daily and you get a decent confluence of fundamentals and technicals supporting a low exposure Short.

[Mercury]

Like several USD pairs (especially GBP) USDCAD executed a sharp turn and reversal at the end of last week with a lower low vs the wave B (brown) and a small 1-2 (grey) to kick things off.  This has occurred after an extended period of whipsaw price action,which appears to have resolved in favour of CAD.  Might we also get some bullishness in Oil as well as USD weakness?  If so this one will run and run.  I believe we are seeing a fast wave C here, which will run faster and longer than other pairs, which are still in an initial wave A.  This one could be the pick of the bunch and could carry much further than the 12700-800 area I have as an initial target, especially if oil get bullish in a big way...

[Mercury]

Is CAD about to join the party?  Potential channel breakout after an extended consolidation phase.

[Mercury]

Staying with the theme of USD weakness I am drawn to USDCAD, if for no other reason than the ATH and ATL can be seen in the relatively recent chart from 2003 (at least as far back as the 1950s).  This means that a retest of the ATH/L is not that much of an historic stretch, as it may be with other pairs.  Additionally the Canadian election is done so no need to worry about politics too much.  The price action down from 2003 is in a 1-5, a phase that started with the ATH and ended with the ATL.  Since then the price action is in an A-B-C, unless we get a breakout to the upside on the current consolidation (maybe a long term Flag?).  On the monthly chart, there is NMD at the wave C (purple) and oscillators are on the way down but have not bottomed yet  The EWT labeling is consistent with an A-B-C consolidation or retrace (pink), which could wind up going much further down OR breaking out in the near future to the upside.

Looking at the weekly there is a medium term supporting trend line in play with an associated horizontal support zone around 13,000, which if broken would signal a sustained bearish period.  There has also been a Death cross and a reversal, which is normal, and setting up a second death cross to cement the trend turn.

On the daily there is also a recent death cross and a series of NMD turns as part of a narrowing channel, which when it breaks should result in a strong move.  Currently my lead scenario is for a break to the downside.

[Mercury]

Short term retest of Fib 62% looks to have failed.  IF this carries then next stop is a test of my weekly supporting trend line.

[Mercury]

Similar to AUDUSD and GBPUSD this pair could be set for a sustained run.  A turn at the Fib 62% 1H chart, has been followed up with a short term consolidation breakout to the down side.  I am finding both AUD and CAD easier to trade in advance of the UK election.

[CharlotteIG]

Heads up guys, CAD news at 13:30 GMT

CAD BoC Consumer Price Index Core (YoY) (Nov) 

Prev: 1.9%

Est: 1.9%

 

 

Generally speaking a higher reading is seen as hawkish, where as lower will be seen as dovish. 

[CharlotteIG]

13 minutes ago, CharlotteIG said:

Heads up guys, CAD news at 13:30 GMT

CAD BoC Consumer Price Index Core (YoY) (Nov) 

Prev: 1.9%

Est: 1.9%

 

 

Generally speaking a higher reading is seen as hawkish, where as lower will be seen as dovish. 

Actual came out as 1.9%

[Mercury]

USDCAD is an interesting one as it hold some similarities with DX, of which it is a part.  On the monthly chart there is a potential long term Flag formation with a set of parallel trend lines containing price in a down trend.  Certainly the upper line has provided good resistance to any USD rally.  There are some professional analysts touting Canadian economy over US at present from a fundamentals perspective and recently a medium to long term supporting trend line has been broken (weekly chart).  I am looking for a break of the next horizontal support line as a crucial one that would push this pair into white space below and bring up a retest of that lower line, maybe around the Fib 62% (11500) or 11000 (on the trend line) or possibly even a break through to retest the previous breakout zone at 10500.  In any event there is a lot to go after here if the breakout down bearish phase holds.

 

[Mercury]

The Loony looks to be about to go on a bearish tear as it approaches a key support zone.  I would be looking to sell any credible relief rally.

[Mercury]

I would like to change the title of this thread as I no longer believe it will be a short drop, although technically that is still possible.  I now believe this pair will run some distance and the nature of the breakout of the weekly chart channel is consistent with a wave C (or 3 of C to be more precise).  Again a possible short term relief rally and retest of the breakout zone but either way I expect this pair to move rapidly down to test the 12700 level.

[CharlotteIG]

DailyFX have posted their expectations for USDCAD. Do you agree? How are you trading this pair?

Find the full article here: USD/CAD Could Reverse to its Yearly Low - USD vs Canadian Dollar Price

 

Please note, we're not telling you which way to trade just providing information to help. 

[RCtrader]

Does anyone here think it's a good idea to go short on USDCAD with TP at 1.3112? My H1 interactive chart

[Caseynotes]

28 minutes ago, RCtrader said:

Does anyone here think it's a good idea to go short on USDCAD with TP at 1.3112? My H1 interactive chart

The question is do you think it's a good idea and why; usdcad shot up on the Cad rate decision and mon pol statement at 3pm and then gave it some more on the presser just after 4pm.

The big boys clearly thought the new information meant it was time to readjust their positions, the question is has there been any new news since to make them change their mind or maybe are they going to think they over did the rally and regretting it now so take some off? Because they are the only 2 reasons to presume price might reverse back down.

The other side is that price might well just consolidate here before continuing upward, especially given oil's continuing decline.

Personally I wouldn't be betting the big boys have got it wrong, and if oil continues down tomorrow usdcad could well continue up.

The point is you must come up with a valid reason as to why price might go up or down before taking a trade, currently the upside looks the stronger to me.    

[Mercury]

2 hours ago, RCtrader said:

Does anyone here think it's a good idea to go short on USDCAD with TP at 1.3112?

To answer your question directly, FWIW, I don't think the rally is over yet.  I am tipping USD to rally further more generally so this USDCAD rally is consistent with that thesis.  There is a technical scenario for a turn at a potential trend line about now but oscillators and other indicators do not align for me and until all or most of my indicators align I wait.  At this point a retest of the down sloping trend line is more likely before another bear phase.  That said let's see what happens tomorrow at the current possible resistance point...  I would want to see a definitive turn down and close below to get interested in risking my capital here, the risk is high against a Short and the exposure level is also too high for me, I mean where do you put the stop?

 

[RCtrader]

On 22/01/2020 at 22:26, Caseynotes said:

The question is do you think it's a good idea and why; usdcad shot up on the Cad rate decision and mon pol statement at 3pm and then gave it some more on the presser just after 4pm.

The big boys clearly thought the new information meant it was time to readjust their positions, the question is has there been any new news since to make them change their mind or maybe are they going to think they over did the rally and regretting it now so take some off? Because they are the only 2 reasons to presume price might reverse back down.

The other side is that price might well just consolidate here before continuing upward, especially given oil's continuing decline.

Personally I wouldn't be betting the big boys have got it wrong, and if oil continues down tomorrow usdcad could well continue up.

The point is you must come up with a valid reason as to why price might go up or down before taking a trade, currently the upside looks the stronger to me.    

Thank you for your extensive and rather persuasive comment. I completely agree with you, I based my projection on USDCAD previous price action after a strong rally. It always used to make a strong retracement compared to other pairs. 

[RCtrader]

On 23/01/2020 at 00:40, Mercury said:

To answer your question directly, FWIW, I don't think the rally is over yet.  I am tipping USD to rally further more generally so this USDCAD rally is consistent with that thesis.  There is a technical scenario for a turn at a potential trend line about now but oscillators and other indicators do not align for me and until all or most of my indicators align I wait.  At this point a retest of the down sloping trend line is more likely before another bear phase.  That said let's see what happens tomorrow at the current possible resistance point...  I would want to see a definitive turn down and close below to get interested in risking my capital here, the risk is high against a Short and the exposure level is also too high for me, I mean where do you put the stop?

 

The pair made a 0.5 fibo retracement on the daily chat during its rally and so pushed the price in the other direction. The daily 55 EMA, however, offered support yesterday, making the price jump up and down.