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I’m going to get started today on the US Dollar versus the Canadian Dollar [USDCAD]. Starting here on the Daily Chart, it is easily determined that we have been in an uptrend for quite some time. We go all the way back down to the bottom of the chart, back in September of 2013. We were down in the 102-level for the USDCAD and recently we’ve capped out all the way up into the 1.1200. So, quite a tall climb here for this currency pair.
Now, over the past several months, we go back to January. Basically back to the beginning of the year. We saw a period of contraction or congestion, where the market started creating lower highs along the top blue trend line and higher lows along the bottom blue trend line. So, we saw somewhat of a triangle pattern developing here at the top of the trend. It’s a period of indecision, where the uptrend hasn’t continued and hasn’t really turned into a downtrend, because, remember, the pattern of a trend is higher highs and higher lows means an uptrend and lower highs and lower lows means a downtrend.
Well, in this period, we saw lower highs, but we saw higher lows, so that was a period of contraction. And then, several days ago, we saw the breakout of that triangle pattern. The breakout to the topside and that push to a new high in the direction of the trend for the USDCAD. Now, over the past few days though, we’ve seen a retracement. The market pulling back against that move outside the triangle and coming back down to the topside of that triangle as a retest of the breakout pattern.
Follow that green-shaded area back. Really you could go either the green or the orange or the space in between there, but follow it back in time and you could see this historical resistance here. These resistance along with the diagonal trend line helping us identify this zone as support. So, it’s my expectation that as long as it stays above this blue trend line, the orange and the green-shaded area, we’re looking for a bounce back up in the direction of the overall trend. If it breaks underneath here, we could be looking for trend reversal and a continuation lower, likely to break the lows down here into the 1.1040-level. And then of course a new trend developing as it continues to pressure lower.
This will be a key decision point for the day and really this week for the USDCAD. As long as it stays above it, we look for return of the uptrend. Getting underneath here, potential for a trend reversal. And if it’s a trend reversal, this is a long-term trend; we could see quite a substantial move back down. Even if we take Fibonacci from the low on the page all the way up to the current high, taking Fibonacci of that range – let me make sure it’s directly on the low. The lowest low to the highest high, we find the .236 fib sitting down here at 1.1018 and the .382 all the way down into the 108.58-level. So, quite a substantial fall down back down towards that blue-shaded area if we do see trend reversal.
But that’s not what’s going to happen today. I think today we’re looking for support into the top of the triangle pattern, into this green-shaded area, and we’re looking for reversal and the continuation of the uptrend for the USDCAD. Let’s go ahead and take that information down to the 4-Hour Chart. Yesterday, during the Trade Room, we discussed this green-shaded area as a potential buying opportunity for this currency pair. If you’ve already taken a buy, of course your stops are likely underneath the orange or maybe even the yellow-shaded area down here where we saw the bank flow levels from yesterday. But this zone here, right above the blue trend line, is where you would expect to look for support and the reversal to go back up towards the blue-shaded area or the pink-shaded area at the very top of the chart.
If we get underneath here, and we could adjust this a little bit if we wanted to. We could take and shade the area between the orange and the green zone, but I think you could see where those areas of historical resistance are back here in time. Green zone of course was our first hope for support. Orange zone. Yesterday, during the Trade Room, we put three different arrows here. The green-shaded area. We put an arrow here into the orange-shaded area because we could see some historical congestion back here. And we even put an arrow down here into the yellow-shaded area because that’s where we saw the bank flows.
So, any one of these three could be the reversal point that we need for this to return back in the direction of the trend. Let’s go ahead and also take Fibonacci just of the last shortest leg of the trend. Just the shortest leg. From this low right here to the current high. That puts the 50% retracement level at 1.1150. Right in the middle of the green zone. .618 happens to be right where the market has found support today. 1.1120. We could see that’s right close to the low today. So, 1.1120 is the .618 fib of just this shortest leg of the uptrend. As long as it stays above there today, I’m looking for a return back higher. Getting back above the green-shaded area, we’ll look for it back to the blue zone as our target.
So, let’s go ahead and put this like this. The orange-shaded area is our current support. Back above the green-shaded area, we look to target back to the blue or the pink-shaded area. I do think though, if we start to breakdown through the orange-shaded area, specifically under the yellow-shaded area and the bank flow levels from yesterday, we’re likely looking for reversal. The yellow-shaded area. Follow it back in time. That’s our last major support low right here. So, if it gets underneath there, we’re likely look for a continuation back down for the USDCAD. So, watching for buying opportunities here for the USDCAD today. A return of the uptrend. Watch for today’s bank flow levels. Over the past three days, we’ve seen bank flow buy levels right here into the orange-shaded area. Yesterday they dipped to the yellow zone. Watch for those bank flow levels today. If they’re here in the yellow zone or here in the orange zone, it will give us confidence in the buyers to drive this back up towards the highest highs for the USDCAD today.
