CAD Technical Analysis

Talking Points

• Long-term convergence awaits near 1.3800
• Negative CAD sentiment near contrarian extremes

USD/CAD broke above the 61.8% retracement of the 2002 – 2007 decline around 1.3460 earlier in the month, and has not looked back. The break of this key resistance coupled with the fact that the exchange rate ignored an important timing confluence late last month pointed to an important push higher. Now I am starting to wonder if the rate has maybe run its course – at least temporarily.

The market turned around yesterday from the internal parallel of a pitchfork drawn from the 1986/2002 highs and the 1991 low, but slightly above that is the median line of the pitchfork drawn from the 1991 low through the 2002 high and the 2007 low. The 161.8% extension is also at 1.3830 so this looks to be a meaningful zone of resistance. With sentiment now at contrarian extremes as measured by the DSI (CAD DSI sub 10% bulls), it would not surprise me to see a decent counter-trend move materialize from somewhere around 1.3800 in the days ahead.
Now of course we have the Fed decision and some BOC speak before that so volatility should pick up over the next day or so. However, for me it would take a close after tomorrow north of 1.3850 to nullify the resistance zone and set the stage for another important leg higher.


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It is in a very strong bullish trend and has continued to make new 11 year highs. I also see short GBP/USD as having some good potential but the move down may be quite choppy and also may be limited at about 1.4500.

Daily price is located above 200 day SMA (200 SMA) and 100 day SMA (100 SMA) for the primary bearish market condition with the secondary ranging between Fibo support level at 1.4001 and Fibo resistance level at 1.4689:

• Bearish support reversal level for daily timeframe is 1.3140 so if the price breaks this level - we can see the reversal of the price movement to the primary bearish market condition.
• "Last week the Canadian Dollar reached its lowest level ever on this survey! Given this extreme condition, it is not that surprising that USD/CAD reversed pretty sharply (carving out an outside candle on the weekly chart) after testing the top of the 1-year standard deviation channel and the 78.6% retracement of the 2002 – 2007 decline around 1.4650."
• "The thing everybody is trying to figure out now is whether that was just a minor setback from an obvious overbought condition or the start of something more significant on the downside. The burden of proof is most definitely on the bears here, but given the levels where we failed and the level of sentiment we reached a more protracted correction period would not surprise – especially if the next rally attempts fails (leaving a secondary high)."
• "Gann levels at 1.4085 and 1.3965 are clear downside pivots, but a move under last month’s consolidation lows are really needed signal that a much more serious correction is taking hold. Traction over 1.4650 would obviously undermine this burgeoning negative view."

If the price will break Fibo support level at 1.4001 so the local downtrend as the secondary correction within the primary bullish condition will be started with 1.3140 bearish target for re-enter.
If the price will break Fibo resistance level at 1.4689 from below to above so the primary bullish trend will be continuing.
If not so the price will be ranging within the levels.

Trend:

W1 - secondary correction

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Daily price is located below SMA with period 100 (100 SMA) and below SMA with the period 200 (200 SMA): the price was bounced from 78.94 support level for the secondary bear market rally to be started.

• If the price will break 92.77 resistance level so the reversal of the price movement from the primary bearish to the primary bullisgh market condition will be started.
• If price will break 78.94 support so the bearish trend will be continuing.
• If not so the price will be ranging within the levels.

Resistance	Support
87.41	78.94
92.77	N/A

• Recommendation to go short: watch the price to break 78.94 support level for possible sell trade
• Recommendation to go long: watch the price to break 92.77 resistance level for possible buy trade
• Trading Summary: rally

SUMMARY : bear market rally

Daily price is on bullish market condition to be located above 200-day SMA/100-day SMA area for the ranging within Fibo support level at 1.3638 and 50.0% Fibo resistance level at 1.4160:

• "The Canadian Dollar has been a volatile currency across the board. Now, USD/CAD implied volatility over 1-month has reached the highest levels since November 2011. This expected volatility means uncertainty is high even with Oil breaking below the January 20 lows."
• "Now the focus turns to what is driving the Canadian Dollar across the board as well as against the US Dollar. The US Dollar has been hard hit, and the ~ 1,000-pip fall in USD/CAD could turn the attention of the Bank of Canada back toward potential easing policy. Such a move would likely be due to a stronger relative Canadian Dollar, which hurts exports; alongside weak Oil that continues to put pressure on the energy portion of the economy will likely pressure economic growth."
• "If USD/CAD is not supported by the 100-DMA at 1.3568, a broader view of US Dollar downside would be favored. However, returning to the first level of focus higher at 1.4101, if that level is taken out the next levels of resistance is the 21-DMA at 1.4139 followed by the late January corrective high of 1.4324."

If the price will break Fibo support level at 1.3638 so the secondary correction will be re-started with the ranging condition up to the possible reversal of the price movement to the primary bearish market condition.
If the price will break 50.0% Fibo resistance level at 1.4160 from below to above so the primary bullish trend will be continuing with the secondary ranging condition.
If not so the price will be ranging within the levels.

Trend:
D1 - ranging bullish


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There are a couple of key support levels not very far away that could be hit today, but a short off a pullback to 1.3800 looks like a better bet.

There may finally be a good long opportunity here if the USD weakens and the price of Crude Oil continues to fall. If the round numbers at 1.3900 and 1.4000 end up cracking easily, that would be very suggestive of a coming move of a few hundred pips to the long side.

• USD/CAD at technical crossroads
• 200-day moving average remains key

The correction last spring, for instance, lasted right around two months before the long-term uptrend reasserted itself with a vengeance. Arguably, this near two-month correction is more important because we went down to test the 200-day moving average. For whatever reason first-time tests of the 200-day MA after a prolonged period above have a tendency to elicit pretty decent recoveries. Until last week, USD/CAD had not been below its 200-day MA in almost a year and a half so the ingredients seem to be in place for a decent rally.

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This pair fell very strongly following yesterday’s FOMC releases, which is not a surprise as the release was bearish for the USD and the CAD has been strong lately, so this pair was well positioned to move down.

M5 price is located within SMA with period 100 (100 SMA) and SMA with the period 200 (200 SMA) waiting for the direction for the possible breakout or breakdown.

• If the price will break 86.18 resistance level so we may see the bullish trend to be started on this timeframe.
• If price will break 85.97 support so the price will be reversed to the primary bearish condition.
• If not so the price will be ranging within the levels.

Resistance	Support
86.09	85.97
86.18	N/A

• Recommendation to go short: watch the price to break 85.97 support level for possible sell trade
• Recommendation to go long: watch the price to break 86.18 resistance level for possible buy trade
• Trading Summary: ranging

SUMMARY : ranging

TREND : waiting for direction