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I’m going to get started today on the US Dollar versus the Canadian Dollar [USDCAD]. I’m going to start all the way out here on the Weekly Chart. Get a longer term perspective for this currency pair. First off, left-hand side of the chart of course for a multi-year period of time, going from 2009 all the way to 2011, we saw this currency pair in a downtrend. You could see that over here on the left-hand side.
I have measured that previous downtrend with the Fibonacci tool. We find the 50% retracement level of that previous downtrend right at 1.1234. Actually, right here in the middle of the chart is the 50% retracement level of that downtrend. Of course we have not reached all the way to bolt 1.12 yet, so that becomes a potential resistance target as the market continues to pressure higher in the current direction that we have been moving in over the past several months.
Then, as we take a look at that same Fibonacci, we also note that over the past few days, or couple of weeks now, we have pushed above the .382 fib, and I’ve highlighted it in red so it’s easier to see here in the middle of all these lines. The red line – the horizontal line – you see here in the middle of all these lines. 1.0800 is the .382 fib. And that’s going to be important as we’re looking for support within the current uptrend.
If you see the uptrend on the right-hand side of the chart, if we’re looking for support within that uptrend, that has potential to show us some support back down at 1.0800. If you follow that back to the left-hand side, you could see some resistance and congestion right around the 1.0800-level on the left-hand side. That helps us identify that also as potential support. So, all those are going to be important as we go down to some of the smaller compressions.
Let’s go ahead and go down to the Daily Chart. And as we get down here to the Daily Chart, first note is that .382 fib at 1.0800. We could see that red line here at the top of the chart. The blue-shaded area. That is where that .382 fib is from the Weekly Chart. We’re quite a ways away from it right now, but if we see any pullback of the current uptrend, if any retracement of the current uptrend, we want to keep aware of where that is just in case we’re looking for support for this to turn around and go back up in the direction of the trend.
And there’s precedent for that. If you go back along the entire uptrend, we could see many times where we saw dips down, dips down, and then returns in the direction of the trend. So, if you take a look at the examples back here, where we saw those dips before rally back in the direction of the trend, it wouldn’t be too hard to suggest a 200-pip or so fall back down into 1.0800 before turning back up in the direction of the trend. So, I want us to keep remembering that.
I’ve also placed a couple of trend lines here. The blue trend line a little bit further away. The black one definitely farther away. The red trend line. The closest one also comes right there into that 1.0800-level. Very important there into 1.0800. At any point over the next couple of weeks, if we see a dip down here, that becomes potential support and a buy scenario in the direction of the trend. Well, we’re a long ways from that. Today we see the market challenging 1.1. It’s a critical key decision point. Resistance right now at 1.1.
The current market is attempting to break above it, and I’ll explain what I mean by that. Typically, we’re looking at a resistance as a barrier in the market. Think of it kind of like a brick wall. Right now 1.1 is acting like that brick wall in the market. The market is attempting to break through it. It’s pushing against it, trying to break through it, but has not actually gotten on the other side. I use the analogy quite often of the speed bump in my Trade Room, where, as you’re looking at a speed bump, you’re driving your car. When do you know you’ve actually passed over the speed bump? Is it when your front tires get over the speed bump or when all four tires get on the other side?
Well, I typically think that most people will wait till all four wheels get on the other side of the speed bump before accelerating. So, if we take a look at this orange-shaded area at 1.1 as a speed bump in the market, we don’t see all four wheels on the opposite side. And what I mean by that is we don’t see a full candle body open and close. So, that’s what I’m looking for to confirm a break of that level. Not just a push into it, but a clear push through it, break on the other side – all four wheels. A full candle body. Until I see that, there’s potential for resistance and reversal here.
And again, there’s precedent for this. If I go back here, just take a look at this purple-shaded area where it had multiple attempts into this purple-shaded area, even spiked above it right here back into July 5th of 2013. It spiked above this purple-shaded area and then turned around and went back down. So, here, again, it didn’t close above it. When did it continue to pressure higher? When it opened and close above it all the way over here. So, take that as an example. Use it here at 1.1. If we see an open and close above 1.1, that gives us further confidence – increases our confidence – that it’s going to continue to pressure higher. Until it does that, potential to watch for a reversal and a turn back down to that 1.0800 target that I talked about at the very beginning.
Let’s go ahead and take all of that down to the 4-Hour Chart. And here we are attempting again to break above that orange-shaded area, above the 1.1-level. It has not clearly pushed through it yet. We do see that the trend bar with the Forex Black Book at the bottom of the chart is green. That does imply that there is a buy or bullish bias to this, but I want to be very cautious and wait for the right timing. I don’t want to make an assumption and then fall prey to a false breakout.
So, if today’s candle – the current 4-hour candle, the little red candle you see up here at the top of the chart – turns bearish and retraces that blue candle that was the previous candle, we could see it potentially having reversal back under the purple-shaded area and going back down again, back down towards the 1.0800-level. If it opens and closes above it, yes, then we’ll begin looking for further evidence that a continuation is more likely to happen. So, here’s what I’m looking at today.
I’m going to go ahead and zoom it in a little bit here on the 4-Hour Chart. Here, over the past few days, we have seen it just holding underneath here. Very shy about breaking above 1.1. Just a quick stab above it today. If it gets back underneath it, I would expect back underneath 1.1 or even into 1.0975, back underneath the orange-shaded area. We’re likely pushing back down towards the purple-shaded area as our next support. If we get that clear – more likely a daily open and close above 1.1, it will increase my confidence that we’re continuing to pressure higher. These historical resistance highs here in the orange zone now become support if we get that clear area, clear breakout above the 1.1-level.
These become support and buying opportunities. So, within or above 1.1 and that orange-shaded area, we’ll look for a continuation of the uptrend and push higher. Back down underneath it, we’ll look for it to push back down to the purple zone. And of course a break underneath the purple-shaded area, which sits down there into the low-1.0900s, we’re looking at 1.0920 down to 1.0910. Getting underneath that, underneath the purple-shaded area, we’re likely taking a push back down towards the low-1.0800s.
Buy low, sell high. That’s going to be your main focus for the next several hours or even a couple of days. As long as it’s at the highest peak of the trend, there’s a high expectation of resistance over bought scenarios and potential to go back down. Your lowest risk opportunity right now is not for a buy because the stop placement is much larger. Your lowest risk opportunity actually is looking for reversal indicators and the possibility of making that retracement back down. Then, once it reaches back down to the purple zone, or even down to the blue zone, then we can be looking for lower risk, higher reward opportunities to buy this back in the direction of the trend for the USDCAD this week.
