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USDCAD at a moment of truth?


Mercury

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Has the long awaited moment arrived on USDCAD?  Anywhere between the Fib 38% and the Triangle line (13310-50) is the turning zone (or breakout zone) but if Oil is in a small 3-4 retrace, which if it is should end quickly, and USD turns back down after a touch back on its upper Triangle line then this pair could fall hard.

 



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Looks like cad is still in the short-term at least continue on the current bull trajectory with a possible truncation at the 38%fib level.

I think right up until the US elections dollar weakness may be limited, however if we start seeing some more weakness coming out of the US then this could add some momentum to the downside, thereby reducing bullish bets on the dollar. As of the 21st of SEP, we can see a supporting trend line and of course the medium term resistance trend line. If we have a break above and close above this resistance trend line then we could head higher which could place the wave count as WXY, but i dont really favor this w-count at present, but i would not rule it out  



 

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I think a sustained break of the upper Triangle line is bullish , which would suggest that the 3 May 16 low was a wave 4 conclusion rather the a wave A as I have it.  This could be.  However, with Oil making a small retrace and USD also heading lower, it seems, this offers competing/offsetting influences on USDCAD.  Medium term I expect Oil to rally again towards $60 (bearish for USDCAD) and USD itself to continue to drop for a while, thus I am bearish USDCAD in the medium term.  Eventually USD rallies and Oil drops, reversing the bias on USDCAD for a long and strong rally.  I just don't think we are at this point yet but who really knows.

 

Thus, until something new comes in, a break of the upper Triangle is Bullish and a drop away is obviously bearish.  I favour the latter and reversal price action around the Fib 38% and upper Triangle (max 13350 area I'd say) is cause to take Shorts for me.  A break out of the lower Triangle to the downside adds weight to this and then we are looking for the end of large scale wave 4, likely to coincide with massive USD rally and Oil plunge, which in turn is likely to coincide with both Stocks and bonds crash.

 

Really it is all coming together isn't it?

 

With respect to the short term, because of the competing influences (if proven true...) we could see a bit of whiplash inside the hourly Triangle before either a test and bounce away down from the resistance zone or a breakout down through the lower triangle or both.

 



 

 

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I think with USD CAD, although oil without doubt has some influence, if you make some comparisons with the DX you will notice it is more dollar influenced, than oil at the moment. Like all cycles, is that i think for the present usd is influencing the move at the moment, and this is evident given the fact oil has rallied but loonie has not, instead has weakened. I am over the medium term very bullish of the dollar, and this therefore will add sustainable pressure on WTI prices and commodities as a whole, hence why USD CAD will suffer along with AUD and of course euro and gbp. But for the short-term i would be looking at the positioning of CAD and look for possibly for key turning point, the break of your pink triangle would confirm this of which also would be the much safer trade of which then this would satisfy my entry rules, but until that happens i would rather stand aside. 

 

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Yes I agree , any USD cross will always be more influenced by relative dollar strength/weakness but clearly we cannot discount the other side of the cross and it seems that some USD pairs do have a tendency to move opposite to the majority and the DX (e.g. Yen and CAD).  There are various reasons I guess but Oil for CAD seems a decent proxy.

 

I guess my main thought is that we will get competing influences on USDCAD for a short while, possible culminating in a test of the upper Triangle line area of resistance and then weakness in USD (DX) and strength in Oil would bring both major influences into bearish alignment.  Therefore look for this alignment at or around a suitable turning point lower for USDCAD is my plan.

 

If we also see EURUSD & GBPUSD rallies then so much the better.  The Yen looks set to make a short retrace rally as well, possibly to retest the breakout tramline.

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Funny you mentioned USD JPY, not shore how much you follow the COT DATA , i myself make regular updates on a spread sheet, just to help with some of my idea generation, but most are still quite heavily long on YEN (not usd-jpy) which suggests to me that they are not to confident with the BOJ and therefore expect inflation to remain low like it has for many years. I myself, although technicals call for it, would rather wait for a bounce from the recent medium term channel and keep track of data before making a long position. 

With USD CAD, it is always difficult to call, but if it fails to make a new high or better still that 38% fib level/break out of the medium term triangle that has lasted since may this year, then my outlook would be bearish.

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Ah ok no worries.  With COT it all depends on how you use and interpret it.  As for myself I am a contrarian and therefore I use COT data exclusively to seek times when the trend followers (i.e. the Hedge funds or non Commercials as it is designated on COT data) are all on one side of the boat, so to speak.  The idea is that if everyone is on one side the boat tips over.  In market terms there are no buyers if everyone is a seller and that is when markets turn.  This is only really possible to do for major turns but some minor turns, especially after an initial major turn are also possible and that is what I see on USDJPY right now.  The smart money are the commercials in this case not the hedgefunds.  The commercials are heavily long USDJPY only the speculators are going the other way, why?  because their models are trend follower based and they don't yet believe the worm has turned.  On a technical analysis basis the breakout from the tramline is a strong bullish indicator.  Given the COT set up and standard EWT and classic charting I would not be surprised to see an A-B-C retrace on the hourly chart back to the daily tramline and then if we get a bounce and rally that confirms a switch i bias to Long USDJPY (short the YEN on COT).

 

With COT as with everything in analysis you have to watch out for confirmation bias, "Lies, **** lies and statistics..."  As an analyst you can substitute stats for data in that saying and it is still true.

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This pair has been a good trade today, mostly based on the dollar index again. But we have a big issue with this pair and that is, if you notice on my chart, we have a rising trend line, most likely a contracting triangle which would be the end of a 5th wave of W-E, or possibly, but doubtful, go to the upside. So if we have a recovery in the DX either tomorow or next week and the loonie fails to break the rising triangle/trend line support then i would closely watch the 38% fib level or possibly the R1 pivot point which also is the resistance of the triangle. 



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That's worth watching , good spot.  However note that your 4Hrly line cuts across a Daily/Weekly Triangle consolidation zone and as Higher time frame formations are superior the 4 Hrly must be treated with caution.  There is also an hourly Triangle formation that was broken a few days ago and failed 3 retests so far setting up a possible EWT1-2 retrace off the 7 Oct high.  Price is now testing your 4 Hrly triangle line, let's see if it breaks out or holds for a rally?

 

If we get a breakout then any later USD strength and/or Oil influence may offer a retest of your 4 Hrly line so still fits with that scenario.

 

Again sorry I can't load charts at present, Dan is looking into it for me so hopefully I can load later.

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USD CAD has been a good trade and has been strengthening nicely. However noticed something interesting recently and given the fact that we have seen sell-offs and rallies, not to mention fed rate expectations, i suspect we may turn higher. Their is a triangle identified from the 4hourly of which i would be cautious if you are in the bear camp. If you are already in, then possibly look at some short covering.



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Been reviewing USD CAD lately and i am not happy with the previous analyses. Although i was correct with the triangle, which in fact in the HOURLY turns out it was an ABC, with c being a diagonal, which in EWT, the rules allow for this. Therefore W5 of C most likely has not been complete. And with FED rate expectations still in play not to mention Clinton expected to win + of course the poor outlook for Canada itself after the bearish outlook outlined by BOC the bulls are firmly in control. 



 

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Looks like Tom Dante was right about going b..ls deep long on USD CAD. You really could not ask for such a great setup. I am not too shore about heading to the 135 level however, as it makes this whole ABC retracement scratching my own head with some confusion as to what is going on?. We also cannot disregard with some momentum divergence. But for me the price action is what matters for me therefore Long trades do seem favorable. But watch the DX as we could step back from this bull phase for some small retracement before continuing on the current trajectory. 



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If given the chance, if CPI does not improve and more talk of cut in interest rates, BOC be just chucking a bone to the market. Not to shore if we are going to see a retrace to complete the whole cycle, daily shows some serious divergence, but these indicators have to be taken with a pinch of salt. Longs are favorable, but how long one should hold on to longs is another story, and a break of my hourly channel would suit me to exit.

 

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True Casey, the problem with this pair and what we have to keep in mind, is that we have FOMC soon and US elections, hence why we will see some significant volatility. This may have a few legs up yet before heading lower, but either way i happy to switch positions once the timing is right. 

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It's been a long time coming to a decision point and there are plenty of alternative views on this pair but now we are there or thereabouts and soon we should know whether we will see a Wave B turn down or a breakout rally.  At present I favour the former as USD DX seems set to retrace down and Oil could be approaching a rally point.  If both of these materialise the USDCAD would be expected to drop quite sharply.  On the Daily chart you can see the long term retrace Triangle (slightly adjusted drawing vs previous charts to account for recent price action) and strong resistance at current levels (although the Fib 50% lies a little bit further up so would need to guard against that if taking a Short).  There is Neg Mom Div, bearish price action and over bought oscillator indications with a valid ending triangle EWT A-B-C count within the Triangle.  There is also an overlapping 1-4 count on the wave C up to current potential top and a 1-5 on the final wave up.

 

On the Hourly chart there is a possible ending Triangle at the end of the 1-5 up from Daily wave 4 (blue).  The Triangle also offers an overlapping 1-4 structure, classic behaviour for a reversing Triangle formation and strong Neg Mom Div.

 

Cannot rule out a breakout up towards the Daily Fib 50% but currently with Oil and DX showing the right signals a breakout of the hourly Triangle offers a decent Short bet in my opinion.

 

Anyone got a view on this one and the related DX and Oil situations?

 



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This pair have now posted an inside bar price action formation (you have to ignore the Sunday evening bar in my view) that has occurred in a strong area of resistance and at a credible upper Triangle line with EWT count supporting a retrace end at Wave B.  

Additionally there is Negative Momentum Divergence (NMD) and overbought oscillators.  Risk is low with stops above recent highs and reward/risk ratio, if this is a wave C, is very high indeed.

 

Additionally USD continues to come under downward pressure and may accelerate as PMIs come in today but the watch-out here is ADP payroll and FOMC decision tomorrow (I'm guessing kick the can down thee road to December) and NFP on Friday then of course the US election (phew!).

 

Finally Oil is at a critical junction and if it rallies along with USD weakness then this pair will fall hard.

 

All-in-all an excellent set up for a low risk short with high reward ratio in my estimation.  Thoughts anyone?

 

 

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That Inside bar may just have morphed into a so-called fakeout via a potential pin bar (day not yet over of course!) and occurring at a time when Oil may be on the point of a turning point into a rally.  This pair has been flirting with the resistance zone for a while now and the latest hourly char moves may be setting up for that run down in a wave C I have been seeking.  Obviously the whole thing could still reverse today so care is needed but the signs are encouraging.

 



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Not just you seeking, me as well lol. Although some good economic data came from Canada, i think a Bull rally in Oil will help bring this pair down. I just cant wait until these elections are over, i definitely would not be touching this pair for a short with a barge poll. Remember US is canada's biggest trading partner, so a Trump win brings uncertainty to them. But yes definetly i will be keeping my eyes. You wont get a perfect entry, but some time next week i would look to it. Best watch that support trend line.

  

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Yeah I hear ya  but a strike on my upper Triangle line (both Daily and hourly) and the Monthly Fib line and the fast repulse back down was sufficient with a good EWT count, inside bar, NMD etc for me to take a short at the line with a close stop.  Now already at B/E so, barring a fast spike, I am covered.  If today ends with a pin bar on he daily then you can anticipate a move down Monday/Tuesday, which would confirm the turn for me. The strong Canadian data adds to the drop rather than being opposed to it and if Oil does turn then the short gets a shot in the arm.  As you say there is not perfect entry but a low risk entry is a hit and rebound back off an area with multiple resistance reversal signals.  What else can you do but trade it?  If you are in the game you must be in it.  The problem with waiting for the "big event" to be over is the move may be well on by then and hard to join.  This is always the traders conundrum and where a guarantee stop comes into its own I guess...

 

Note the wave 2 may come as we move into the US election...

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Not just 1 but 2 pin bars after an inside bar fakeout to the first pin bar all at significant resistance zone with NMD plus RSI/Stochastic turning down out of overbought.  On the hourly chart it looks like a triangle break and retest that coincides with the gap closure, a common structure for a trend in the direction of the initial gap.

 

In parallel Oil appears to be making a turn at an up-sloping trendline with an inside bar formation in play and PMD on 4 hourly and hourly charts and RSI/Stochastic turning up out of oversold on the Daily.  On oil the A-B (red) EWT count as part of a complex retrace works the 1-4 (blue) does not due to overlap.  A reversal here and break through the supporting trendline brings up a bearish outlook but until that happens the likely scenario of a rally to the $57+ area seems on coinciding with an extended bearish move on USDCAD.

 



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With Oil my prefered wave count is an ABC of which if we have ended the current bear market which is heavily uncertain until US elections are over with, then we would be looking at a strong C wave to the upside. I really cannot see this being a simple 12345 WAVE scenario as wave 1 has been violated, hence why i would want to stick to the present wave count. I suspect OPEC will come to an agreement, as they have done this before. Whether or not we will see demand pick up is another matter. With the way oil inventories are heading not to mention better and cheaper means of producing oil from the US and of course the notorious shale producers, it is hard to see us seeing the end of the bear market until we see some strong global growth. Anyway i am drawing some similar conclusions.



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  • 3 weeks later...

Again dollar bulls have been defending this pair from the bears with a relentless force, but have failed to make substantial progress compared to its other pairs, without a shed of doubt caused by the swings in Brent crude. However i see 2 plausible scenarios for the short term. If you look at the chart below you will notice a type of channel in ORANGE of which has been bounding from one end to the other. Now this simply could be a an ABC retrace which indicates further upside possibly to the 138 level, or if we see a good sell on the DX or OPEC comes up with a significant output cut strategy then we could head sharply lower. 



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Interesting articles form a few days ago how markets are underestimating a rate cut from the BOC in relation to fears of NAFTA. Also concerns about rising bond yields and canada's fragile housing sector. Well worth keeping in mind. Added some charts too. Rate decision on the 7th and markets will want to know the BOC governors concerns on rising yields.

Dont forget a speech by the governor is to be made Tomorow or MONDAY 28TH so may be volatile.

Notice below on the bloomberg chart how bond yields have decreased along with a depreciating with the Loonie, but very recently a significant spike has occurred with yields. Also chart of WTI, DX AND USD CAD together. CFTC DATA ALSO BELOW LAST 6M

 

http://business.financialpost.com/news/economy/a-bank-of-canada-rate-cut-is-more-likely-than-markets-think-economists-warn

 

http://business.financialpost.com/investing/heres-what-the-market-wants-to-hear-from-poloz-ahead-of-bank-of-canada-interest-rate-decision?__lsa=0997-e9d5

 



 

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