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I’m going to begin the day today on the US Dollar versus the Canadian Dollar [USDCAD]. Today I’m going to start all the way out here on the Weekly Chart so we can get a longer-term perspective for this currency pair. On the far left-hand side of the chart, we could see that this currency pair was in a downtrend for quite some time. We start all the way up here into the 1.3000s, back in early 2009, and over the next couple of years, we saw lower highs and lower lows as the market continued to pressure lower, all the way back down here into 2011, down into the 1.9300s.
Well, taking the Fibonacci measurements of that downtrend from the Weekly Chart, that previous downtrend, we find the .382 retracement level at 1.0800. And that’s significant because we’re very close to that in the current market, and I’ve put a red, horizontal line there so we can really see where that .382 fib retracement of this previous downtrend is. The second thing I want to point out here, and I’m going to actually zoom in a little bit so we could see this a little bit better is this yellow-shaded area. The yellow-shaded area.
If you look back here on the left-hand side of the chart, you could see how the market has found resistance many times going between November 2009, January 2010, May of 2010, even going as far as August of 2010. So, we saw about a year finding resistance into that yellow-shaded area. Then we saw a dip down. A rally back higher came very close to it here into October of 2011. So, the yellow-shaded area is historically significant. The red line is the .382 fib from the Weekly Chart. So that’s what I wanted to point out here, all the way out on the Weekly Chart.
Now let’s take that information and go down here to the Daily Chart. And as we get down here to the Daily Chart, we could see, of course, this pair has been in a long-term uptrend. It’s been going up for quite some time. Over the past year or so, we’ve seen this uptrend in place. Guess where we’re coming back into now. Right back into that yellow-shaded area that we looked at on the Weekly Chart between 1.0670 and 1.0700. Actually, 1.0660 and 1.0700 is that yellow-shaded area. And for the past two days – this is the Daily Chart. For the past two or three days, we’ve seen the market holding underneath that key resistance level.
Now, there’s two potential opportunities here into this yellow-shaded area. Either it breaks above 1.0700 and continues to pressure higher and breaks out in the direction of the trend, or it finds resistance here, the bears jump in, and we see some reversal for this to go back down. So it’s a key decision point here for the USDCAD. Of course if it breaks out above 1.0700, we already have an idea of where it’s going to go because of that red line and the .382 Fibonacci retracement level at 1.0800. But if it doesn’t, we also want to know where it’s going to go if it finds reversal and goes back down. And it’s likely going back down here towards this purple-shaded area and this red trend line, of course the red trend line representing the shorter leg of the uptrend. Just this short piece of the uptrend that also sits right here into the mid to upper-1.0500s.
You follow it backwards in time. That purple-shaded area. You could see historical resistance here. Historical resistance here. So, we know that historical resistance can identify future support. So, if the market falls back down, we would likely expect support here into this purple zone, right around the 1.0580 to 1.0550-level. For the day today: as long as it holds underneath this yellow-shaded area, it would be a good idea to watch for clues to reversal. You could look for candlestick formations such as a shooting star or engulfing candle that imply reversal to go back down. You could look for candlestick or charting patterns like a head and shoulders or a double top, or something like that, that implies potential reversal, or you simply could look for a change in the trending pattern whether it’s here on the Daily, the 4-Hour, or the 1-Hour for a change in the trending pattern, which, right now, has been higher highs and higher lows within the uptrend. You’d look for the reverse and lower highs and lower lows.
And we don’t see that yet, but that’s something you would look for as a clue to reversal. Of course the trend bar with the Forex Black Book is green, implying bullish behavior, bullish trend. That’s our bias right now. And our best opportunities – our lowest risk opportunities – is not to buy it right now into this resistance, but to wait for it to go back down into the support, into the purple-shaded area. You look for support there, buying opportunities on the dip lower, or a break above the 1.0700-level and that yellow-shaded area for it to continue to pressure higher.
Let’s take all of that information down here to the 4-Hour Chart. And as we get down here on the 4-Hour Chart and it refreshes, we of course see the green trend bar with the Forex Black Book, again, implying bullish behavior. We could see that bullish market as the market has pushed above the purple zone, back to the yellow zone. Interesting here is that yesterday we saw the bank flow levels here on the 4-Hour Chart. Yesterday’s bank flow levels sitting just within that same yellow-shaded area that we began discovering from the Weekly Chart. So, for the day today, as long as it holds within or under that yellow-shaded area, it holds underneath the bank flow levels, I expect we’re looking for short-term reversal for a fall back down to our next support, which, again, is all the way back down here into this purple-shaded area and the mid to upper-1.0500s.
If I measure this with our cursor here, between the yellow and the purple-shaded area, we’re looking about 80 to 85 pips of profit. If you take a sell here, there’s a great potential for profit on the way down. Protect that profit as it moves in that direction. Of course, lower highs and lower lows would be something that you’d look for. We don’t see that yet. We don’t even see – and I’ll even put a shorter trend line here on the 4-Hour Chart. Let’s put this trend line here. We continually see the uptrend in play. If it breaks underneath that trend line, then, yes, that gives us another clue to reversal to go back down for this pair, but nothing yet telling us it’s going to reverse. Simply challenging resistance.
Your lowest risk, highest reward opportunities will come on challenges of this resistance. Selling opportunities targeting back to the purple zone. That risk is invalidated if it breaks above the 1.0700-level. We’re likely going to be taken out and we’ll look for it to continue to pressure higher, once again, all the way back to 1.0800 for the USDCAD this week.
