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I’m going to begin the day today on the US Dollar versus the Canadian Dollar [USDCAD]. Starting here, on the Daily Chart, it’s not too hard to see that this currency pair has been in an uptrend for quite some time. If I actually zoom it out a little bit so we can see further back into history, we could see that this currency pair has been in an uptrend, starting all the way back here in September of 2012, starting down here into the 0.9600s and climbing now all the way up into the 1.0700-level over the past several days. So, an uptrend is really the main focus for this currency pair. Until we see some changes in the trending pattern, that’s the direction that we’ll continue to focus our efforts in.
Zooming it back in so we could see the candlesticks here, of course we have three different trend lines here on the chart. Of course the bottom blue trend line representing the longest version of the trend going all the way back to September of 2012. Then we have a little, shorter blue trend line representing the last couple of lows here where the blue trend line intersect down here into the 1.0175 level or so. Then we have a red trend line representing the shortest piece of this trend, or at least the most recent leg of the trend, as it climbed from down here into the 1.0300-level, settled out into a period of congestion here between the blue and the orange-shaded area, connecting the red trend line there on that last support. Another leg pushing back to 1.0700.
So we see the red trend line representing the most recent leg of the uptrend and the blue trend line is the longer-term legs of the trend. First off, let’s take a look at this purple-shaded area. Follow the purple-shaded area backwards in time. That goes between the 1.0580-level and 1.0550-level. About the 30-pip zone highlighted in the purple color. Follow that backwards in time and you can see these historical resistance. Here into August, mid to late August, we can see some resistance underneath that purple-shaded area. Going back just a little bit further into July and even into June, we could see some resistance into that purple-shaded area.
Well, as technical traders, we know that historical resistance can help us identify future support because often that’s the way the market works; is resistance becomes support and support becomes resistance, because traders are people and people tend to do similar things. They find a comfort level – a price level that they’re comfortable with – and will tend to do similar things. That’s why technical trading works the way it does, because people tend to work in similar ways all the time. So, we could see historical resistance where traders made the decision to exit buys and enter sells back here in June and July and August. And then, coming back here into the current time, we know that there’s a high probability that traders will do a similar thing. But this time, instead of being resistance, we’re going to find support on top of that same price zone between 1.0550 and 1.0580.
That historical resistance coupled along with the red trend line here helps us identify a probable support today in the direction, of course, of the overall trend, which has been bullish. So, my expectation is: as long as it holds within or above this purple-shaded area today and that red trend line, I’m looking for buys on dips into support in the direction of the trend. The only thing that will change that and invalidate that outlook is that it breaks down underneath that red trend line and underneath that purple-shaded area. We’re likely challenging back down here towards this orange-shaded area. Let me see if I can drag that over a little further. And that blue trend line, down here into the upper 1.0400s. That orange-shaded area becomes your next support target on the way down if it breaks underneath the red trend line and the purple-shaded area.
But for the day today, this is our critical decision point – into this purple zone. Looking for buys, dips into the mid to upper-1.0500s today. Of course the resistance over the past few days has been this yellow-shaded area. If you took sells up there, this is a profit target, so you should be protecting profits on the way down. If you took sells in the yellow-shaded area and the highest highs towards the 1.0650s, the 1.0700. If you took a sell up there, you’re reaching a target of profit, a target of support. You should be protecting those sell profits as it approaches this purple zone because there’s a high probability, again, that we find support and bounce back up again in the direction of the trend.
Let’s take that information down to the 4-Hour Chart and here again is that fall back down into that purple-shaded area and we could see the market coming down into the purple zone. We can see even over the past two or three days the bank flow levels also now showing up. Note last week we didn’t see any bank flow buy levels back here. As the market continued to rally and rise towards the yellow-shaded area, no buy levels. Now that we see a fall coming in and the sellers taking a little control of this currency pair back down towards the trend line, the buyers are now stepping back in and the higher probability now is that the buyers will support this and look for it to go back up in the direction of the trend similar to what happened down here in this blue-shaded area.
Note here the buyers came in, the buy orders, the buy bank flow levels came in, found support, and made that new leg higher. So, that’s exactly what we’re looking for now into this purple-shaded area; is that the buyers step back in and drive it back in the direction of the trend one more time. Green trend bar with the Forex Black Book also implies a bullish bias to this currency pair. So, what we’d be looking for now is for a new green arrow, a new buy arrow, and that’s a possibility now that we’ve seen that dip lower down here into the purple-shaded area and towards the red trend line. Now it becomes a higher probability that we’ll see a new buy or bullish buy arrow. A lower risk, higher reward scenario does exist as it dips into support.
So, it’s my expectation, as we dip here and find support into the purple-shaded area, we’re going to begin looking for buying opportunities, targeting back to the yellow zone. And of course, a break of that yellow-shaded area and our current resistance highs, we’re looking for a continuation of the uptrend, likely back up towards 1.0800 for the USDCAD today.
