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USDCAD Resistance is Broken – Now What?


May.01.2017

Last time I wrote about USDCAD resistance was when it was testing the key 1.35 level. It has since broken and confirmed above this level. Today I'd like to tell you my long-term USD/CAD story. Then I'll jump into the IDDA including the Ichimoku - Fibonacci analysis. I'll be sharing my investment strategy in our investing group

 

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My Long-term USDCAD Resistance Story

I've been in my bullish USD/CAD position for over a year. I made a mistake and entered right as the pair started to drop. I ignored the Ichimoku signals and thought I'm smarter than that (bad idea).

However once I recognized and admitted that I made a mistake (very hard to do!) I decided to NOT make things worse.

I took a strategic approach. After calculating my risk tolerance, I decided that instead of using a stop-loss, I'd add on to my bullish position as the pair drops.

I kept my cool as the market went against me month after month after month. By adding to my bullish position in lower prices, I was able to bring my net long position higher up. Last week, after 1 year, I finally got in positive territory, as the key USDCAD resistance was broken.

Now the question is, when do I sell? And do I sell all at once?

Below is an IDDA analysis on USDCAD resistance breakout.

But the moral of the story is this:

Patience is a profitable virtue :)

1- Fundamental Points

The first point of the IDDA suggests looking at the fundamentals of everything that could impact the currency pair. Here we go.

Oil: We look at oil prices when analyzing Canadian dollar crosses, because Mr. Loonie correlates to oil. When oil prices drop, so does Mr. CAD.  So what's been going on?

In a nut shell, oil prices have been dropping. And according to a Wall Street correlation research, it could go even further since US GDP disappointed. Weaker-than-anticipated economic growth typically raises concern about energy and fuel consumption. That weighs on crude prices.

 

Another thing you'd want to pay attention to when it comes to oil, is OPEC. The 172nd OPEC meeting is on May 10th 2017. The OPEC production cut deal will be expiring in June. So market participants are eager to see in OPEC members  like Saudi Arabia and Kuwait are game for another round of production cut.

 

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Canada:  Canada's economy unexpectedly slowed down in February. On a MoM basis, their GDP dropped 0.6%.  Economists surveyed by Bloomberg were predicting a 0.1 percent gain in February, after a 0.6 percent jump in January. But it disappointed the market participants big time.

 

Their retail sales and Consumer Price Index also disappointed in April. No wonder Mr. Loonie has been down, eh?

 

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U.S. and A: Welcome to the month of May, when many traders "sell and go away." Ahead of the summer, many market participants in the US (especially in the equities market) start taking profit on their positions. This put the market as a whole under pressure.

 

sad forex trader

 

Over the last five years the dollar index has always ended the month of May in the green. Technical analysts believe history could repeat itself. But how is the US economy doing?

 

For the most part, not as good as the analysts expected. The first quarter GDP report  showed that the US economy is off to a slow start in 2017.

Many Americans say they feel more optimistic about the economy since President Trump was elected.

But they certainly are not acting that way. Consumers pulled back sharply on spending in early 2017, reducing the economy’s quarterly growth to its lowest level in three years. In fact, the 0.7 percent annual growth rate for the period is far below the 2.5 percent pace in President Barack Obama’s final three months in office, let alone Mr. Trump’s 4 percent target.

When it comes to the US fundamentals, we should also put politics into consideration. Will Trump provide details on his tax plans? Or will he escalate trading tensions against largest trading partners of the US? Or maybe he’ll start a war with North Korea? Or he'll continue sending bombs to Iraq, I mean, Syria, while having the world's best chocolate cake?

Before we get too confused, let's turn to the second point of IDDA: Technical analysis.

 

2- Technical Points: USDCAD Resistance Breakout

Daily Time Frame: The 1.35 USDCAD resistance was broken on the final week of April. The breakout was then confirmed by a series of bullish candlesticks. Although the pair started today's Sydney session under pressure, we have marked the next USDCAD resistance at 1.3810. That is the 61% Fibonacci level.

Furthermore, the pair also confirmed above daily Ichimoku cloud. The Tenkan line crossed above the Kijun. And the Chiko span crossed above the cloud. That's a bunch of Ichimoku confirmation right there.

 

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USDCAD resistance breakout above Ichimoku cloud - Daily Chart USDCAD resistance breakout above Ichimoku cloud - Daily Chart

However on Monday's Sydney session, the USD/CAD pair hit a new (less strong) resistance level at 1.3665. This level used to be a support.

 

Monthly Time Frame: On the monthly chart, the pair still appears to be completing the gigantic Double Bottom chart pattern. The neckline is at 1.28, while we could mark it as complete if/ when it reaches the highs of 2002 above 1.45.

USDCAD resistance - Monthly Technical Analysis USDCAD resistance - Monthly Technical Analysis

 

Keep in mind that the median USDCAD resistance / support is right at the 1.28 zone.

3- Market Sentiment

By the end of April,  32.9% of retail traders were net-long on USD/CAD with the ratio of traders short to long at 2.04 to 1. In fact, traders have remained net-short since Apr 18 when USDCAD traded near the 1.35 resistance.

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Kiana Danial Happy - Investment Strategy learn more

Retail trader data for May is not yet available.

We typically take a contrarian view to crowd sentiment, and the fact traders were net-short end of last week, suggests USD/CAD prices may continue to rise. Yet traders were less net-short on Friday than the previous day, and compared with the week before. Recent changes in sentiment warn that the current USD/CAD price trend may soon reverse lower despite the fact traders remain net-short

 USDCAD Update - Strategy

As 4th point of the IDDA, you must calculate your risk tolerance before deciding on which trading strategy is suitable for your portfolio. Join us for a free workshop to learn more.

 

Disclaimer: Forex is one of the HIGHEST risk investing instruments there is.  For further help, please visit our investing group.

As an Invest Diva you should be able to put the two and two together and develop a strategy suitable for your portfolio and risk tolerance at this time. For further help, and if you want to chat with me regarding your trades, join our investing group here. It's awesome!!

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Here are Invest Diva's calculations for important approximate levels for USDCHF  to keep an eye on:

 

Support Levels Turning Point Resistance Levels
1.2824 1.3273 1.3810
1.3018 1.35 1.4150

 

 

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