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Massive USD/CAD Reversal Bottom Signals Major Shift in Momentum

By:
James Hyerczyk
Published: May 4, 2016, 01:53 UTC

The USD/CAD had its biggest daily gain in more than nine months on Tuesday. The rally was triggered by a steep drop in energy prices and stock markets as

Massive USD/CAD Reversal Bottom Signals Major Shift in Momentum

The USD/CAD had its biggest daily gain in more than nine months on Tuesday. The rally was triggered by a steep drop in energy prices and stock markets as weak Chinese economic data raised worries about the global economy.

The more than 1 percent rally came after the U.S. Dollar touched its lowest level in 10 months against the Canadian Dollar. The Forex pair has been under pressure since late January, losing more than 15 percent since then.

The Canadian Dollar was under pressure most of the session from strength in the U.S. Dollar against a basket of currencies, as well as an interest rate cut from the Reserve Bank of Australia on concerns about deflation. Canada and Australia are often seen as having parallel resource-based economies.

Daily USD/CAD

Technically, the main trend is down, but the closing price reversal bottom is a strong indication that momentum and investor sentiment has shifted to the upside. The potentially bullish chart pattern will be confirmed by a move through 1.2731. The main trend on the daily chart will turn up for the first time since early February on a trade through 1.2757.

Based on Tuesday’s close at 1.2724, the direction of the market today is likely to be determined by trader reaction to 1.2731.

A sustained move through 1.2731 will indicate the presence of buyers. This could create enough upside momentum to challenge the last swing top at 1.2757. Taking out this top will change the main trend to up and could drive the market into the downtrending angle at 1.2798.

The angle at 1.2798 is the trigger point for a possible acceleration to the upside with the next objective the April 18 main top at 1.2989.

A sustained move under 1.2731 will indicate the presence of sellers. This will also be a sign that yesterday’s rally was triggered by weak shorts covering their positions. If this is the case then look for a 50% retracement of the rally back to 1.2600.

If this market is going to move higher over the near-term then look for aggressive counter-trend buyers to come in on a pullback into 1.2600. The USD/CAD is not likely to retest 1.2460 unless crude oil rallies back to its high.

Watch the price action and read the order flow at 1.2731 today. Trader reaction to this price will tell us if the bears are losing control and if the bulls are taking control.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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