Strengthening Canadian Dollar Signaling Possible Major Bottom – USD CAD June 28,... |
The USD CAD continues to feel the pressure of a possible solution to the Greece debt problems. As the Greek Parliament moves closer to approving the budget cut package, investors are starting to speculate on the next move in the Forex markets.
The strength in the Euro suggests that the market is setting up for a relief rally. At the same time, investors are shedding their positions in the safe-haven U.S. Dollar, putting pressure on the Greenback. With the U.S. Dollar falling, investors are taking an interest in the long side of the commodities markets.
Solid up moves in crude oil and gold are helping to fuel a rally in the Canadian Dollar. The recent rise in the USD CAD, driven by demand for safety led some traders to believe that this currency pair would trade to 1.00 or parity before any significant selling pressure would hit the market. The main thought was that parity was likely to become a top since this is the most logical price that would attract Canadian export hedging pressure.
A shift in the outlook for the Euro and consequently risky assets abruptly put an end to the rally in the USD CAD on Monday. Technically, this pair formed a closing price reversal top at .9912. The pattern was confirmed the next day, setting up a possible 2 to 3 break back to at least 50% of the last leg up from .9700 to .9912. This 50% level has been identified as .9806. Additional support may also come in at the 61.8% level at .9781.
Typically, the closing price reversal top is only a warning that a top may be forming. Contrary to some beliefs, the pattern isn’t a change in trend, but merely an excuse for long traders to exit their positions close to the top.
According to the daily swing chart, the USD CAD will remain in an uptrend unless .9700 is violated. Now that the market has made its 50% correction to .9806, bullish traders may re-enter looking for another shot to the upside and potentially parity.
The market may also rally to set up a top and possible break. This may take time to form, but it is possible that the Dollar/CAD will rally back up toward the top at .9912 and fail. Should this occur, then the market may form a secondary lower top, indicating the start of a possible break.
Traders have to be patient at current levels because of the situation in Greece. A favorable resolution to its debt issues should mean a break in the USD CAD. It is possible that the market has already anticipated this taking place, however. If this is the case, then there may not be that much more action to the downside and the market may set up for a quick retracement up.
The real decision for investors will come following a retracement up and the test of the top at .9912. A failure at this price will likely signal the start of a sizeable decline. Basically traders should watch for a possible two-sided trade as investors try to decide the impact of the passing of the Greek austerity measures on the market.
About the author: Forex Mansion Analyst - James Hyerczyk
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