USD/CAD - This Week's Technical Opportunity [26-05-2008] - [30-05-2008]

Source: DailyFX.com

The oil ‘crisis’ is dominating financial headlines, business shows, and even congress’ agenda. When the price of a commodity commands this level of publicity, the probability of a sharp reversal is heightened. As a currency trader, one way to speculate on an oil reversal is with the USDCAD. What’s more, risk is well defined.


This is a longer term look at the decline from the 2002 top near 1.60. The drop is in 7 waves (to this point), and could be complete as a double zigzag correction. If this pattern holds, then a multi-year low is in place at .9055 and the USDCAD is headed much higher in the coming months. A word of caution though; there is an alternate bearish pattern that holds just as much weight and allows for a new low (below .9055) before a major low is considered in place. For bulls though, risk is low. We’ll address this in shorter term charts.

The break of a trendline a few weeks ago is worrisome but as long as price is above .9710 (keeping a series of higher lows intact), a bullish argument can be made. A drop below .9710 will either lead to a drop below .9055 (and final low) quickly or complete wave B of a triangle. In the case of the latter, the USDCAD would trade in a range for probably the rest of the year. In summary, a drop below .9710 warrants a bearish bias. Even in the case of the triangle, the pair likely drops into the .9300 area to complete wave B.


This is the chart that we have been showing in the technicals for some time and illustrates why we have favored the bull side. We are treating the advance from .9710 to 1.0324 as wave 1 (probably of a larger C wave) of a bull cycle. The slow drop from 1.0324 has all the earmarks of a correction; time consuming and consisting of 3 wave movements. The bullish line in the sand is .9710. With price so close to there, reward/risk is heavily skewed in favor of bulls. The minimum objective is above 1.0324.