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I’m going to get started today on the US Dollar versus the Canadian Dollar [USDCAD]. I’m starting all the way out here on the Weekly Chart, but first off, take note that there is some significant data about an hour from the recording of this video. We have US non-foreign payrolls and Canadian employment data, all that coming out at the same time, about an hour from the recording of this video. Could dramatically change this forecast that I’m getting ready to go over here for the USDCAD because both currencies in this pair will be affected by those pieces of data.
Anyway. Starting here on the Weekly Chart, long-term trend. I went to point that out first. Going all the way back into August and September of 2012, we saw a low down there at the bottom left-hand side of the chart, and then we began a rise. That continued to pressure higher from all the way down here into the 0.9600-level, to the top of the chart, into the 1.1200s. So, quite a long rise that that pair went in for a couple of years.
Then we’ve seen a little bit of a dip, as the market started a downtrend from up there into the upper-1.1200s, all the way back down here in most recent months, back down into the 1.0600s. Now we’ve seen a little bit of reversal again, as the market started to go back up in the direction of the previous uptrend, pushing back higher again. Now, over the past several weeks, we’ve had this pattern drawn here on the chart and it’s going to be very recognizable as we get down on smaller compressions, but I just wanted you to see where the longer-term trend came from, and then the shorter-term downtrend that’s really been part of that longer-term uptrend that we’ve been talking about in the Trade Room for the past several weeks.
Now let’s take that information down to the Daily Chart. And let me zoom out one time so we could see that. There’s that downtrend. The blue trend line. It was going down for, you know, several weeks. We’re going from mid-March all the way down here into July. It was going down for quite some time, several months, pushing down, lower highs and lower lows. Then we saw a break above that blue trend line. It pushed back above the 100-day moving average. That’s the green line on the chart. 100-day moving average.
The Forex Black Book trend bar at the very bottom of the chart. The red and green bar turned green, giving us a bullish bias. So, all of that happened at the same time, where the trend bar turned green, broke above the trend line, broke above the moving average, and now we’re just sitting now on top of all of that support. Support of the blue-shaded area, recognizing historical support within the downtrend right here. The blue-shaded area.
We see the 100-day moving average sitting here. We see the green trend bar, Forex Black Book being green. All of that giving us an expectation that we’re looking for support and a turn back higher again in the direction of the previous uptrend. You might even recognize this as an inverted head and shoulders. An inverted head and shoulders having the shoulder level along the blue-shaded area, along that black trend line that you see there. As long as it stays above that blue-shaded area, the 100-day moving average and the shoulder level of this pattern, we could be looking for reversal once again to go back up in the direction of what was the longer-term uptrend. Remember that red trend line at the bottom of the chart.
What’s going to be a confirmation of that will be a breakout above the pattern. If it breaks above that pink-shaded area, the top black trend line and what we’ll call the neck level of the head and shoulders pattern. If it breaks above there, of course we look for continuations back to the 1.1100s, maybe the 1.1200s or even higher for the USDCAD. All of that only changes and it’s invalidated if it breaks under the blue-shaded area. If data comes out today and causes this to go down rather than up. Then we would look for a break of this pattern and we’d look for it to go down.
What are we looking for? We’re looking for low risk, high reward opportunities. That’s what we’re always looking for as traders. We’re look for trades that have very low risk in case it doesn’t do what we want it to do and takes it out at a stop. We have very low risk and we lose a little bit of money compared to the amount of gain that we potentially have. So, if we’re looking at this, just this pattern that we’re having here. If we know that there’s potential support here; we already know that. It’s a fact. It’s not something we’re guessing at. There’s support here. We could see the market holding here over the past several days.
So, if we’re into support and we don’t want to sell it because it’s sitting on top of support, and there’s a higher probability to buy it here into this support level, then this becomes our lower risk opportunity and our higher potential reward is targeting back to the top of the pattern or a potential breakout and a continuation higher. What’s the risk? The risk is that it breaks underneath the blue-shaded area, underneath the pattern, underneath the 100-day moving average, and starts going lower.
Now, like I said at the beginning, we have a lot of data out of the US and Canada today, so keep that in mind. It could dramatically change this. If the data comes out in a way that it breaks through the blue-shaded area, all this is shattered and we’re likely looking for it back down to the yellow or maybe even down to the lowest low that we see here on the chart, back to the red trend line. So, keep that in mind, but I think for right now, technically speaking, as we’re looking at this, we’re into support. You don’t want to sell it right now. You’re more likely looking to buy it, targeting the pink zone, green zone, or even higher, back into the 1.1100s or 1.1200s. That’s what the technical analysis is telling us right now about the USDCAD. And only if it breaks that blue-shaded area do you begin to sell this currency pair.
And when I talk about a break, I typically mean a clear open and close. We’ve seen two attempts. Look at those last two wicks or last two shadows that have spiked underneath that blue-shaded area. Those were temporary breakouts. Those were false breakouts. Those weren’t real breakouts. I’m looking for a single candle body open and close underneath there to give me confidence that that is truly broken, and we haven’t seen that over the past week or so.
So, buying still the main purpose here for this currency pair. Green trend bar. New green arrows on the 4-Hour Chart will tell us that that’s a signal that the momentum is shifting to go back up. We come down here to the 4-Hour Chart. Let me zoom out a little bit. We come down here to the 4-Hour Chart. Guess what. A few hours ago, we saw a new green arrow pop up.
Take a look at the last green arrow. What happened when we saw the last green arrow? Green arrow popped up from the blue zone, went back to the pink zone. That’s no guarantee of what’s going to happen now with this green arrow, but definitely gives us some confidence that we’re on the right track. Buying into support, the blue zone. The moving average from the Daily Chart. The green trend bar. Green arrow. All of that tells us that we’re on the right track with our thinking, and that’s what the majority of the market is thinking at the current moment because it’s still holding at that support.
Again, if it breaks the blue-shaded area, breaks underneath the moving average, then we’re looking for it to go down. But for right now, everything, all the evidence is pointing back to the upside here for the USDCAD. The bank flow levels yesterday also implying that also. You see the bank flow buy levels just under the blue zone. They were there under the blue zone yesterday. We see the sell levels all the way up here in the pink zone. Same thing. The bank flow levels are implying the same thing that we’ve been talking about.
Blue zone: support. Pink zone: resistance. A breakout at some point. Above or below those bank flow levels, and the pink and the blue-shaded area will signal a continuation of the trend, either lower or higher for the USDCAD today and going into the coming week.
