Is a Canadian Dollar reversal hanging in the air?

Trend moving upward

The Double Trend Trap (DTT) motto is to keep trading simple by trading with the trend of each currency pair. Trading with the trend has tremendous benefits such as short holding time, quicker development of a trade, unlimited reward to risk potential (when using a trail stop loss), etc.

But one of the key steps in the DTT strategy is in analyzing whether the trend could potentially continue. The presence of a trend is not sufficient – although with a bit of luck a trend can be traded at any spot. However, obviously traders can optimize their statistics by removing trades with the least odds of success.

chart for CAD

TWO MAJOR FILTERS

In this process DTT utilizes two very important concepts to judge the probability of a winning trade:

  1. Support and resistance or the “wide open space” of each pair
  2. Momentum moving in the same direction as the trend

Point number 2 is exactly the disturbing factor when reviewing the USDCAD daily chart. The fall from 1.1280 to 1.0860 surely occurred quickly (less than 3 weeks) and can be considered a swing high swing low with considerable momentum. There are two main scenarios:

  1. The momentum was a correction within the uptrend
  2. The momentum was a first part of a bigger correction or a reversal

USD/CAD chart

MAIN SCENARIO

In my experience there is a higher chance that a correction with such a momentum belongs to option B. However, before the bigger correction downward could start, the currency market loves correcting itself. Therefore a correction / retracement to the upside prior to more downside correction / reversal is likely.

In fact if the analysis of scenario B is correct, then the upside price action should be very slow and should take 2-3 weeks according to my experience and statistics. Price will most likely confirm the corrective nature of price by building a chart pattern as well. A contracting triangle or a rising wedge are the usual chart patterns which appear in these corrections. This pattern can end at the 50%, 61.8% or even the 78.6% Fibonacci retracement level.

USD/CAD CHART

TARGETS

In the case where price moves up more impulsively than expected then scenario A is starting to be more likely. In the case where price does slow down substantially in the next 2-3 weeks then more downside can be expected. The first target is the -27.2% Fibonacci target at 1.0740, although the main target is the -61.8% Fibonacci target at 1.0593. The latter target is close to the weekly 38.2% Fibonacci retracement level at 1.0648 (and price already stopped at the 23.6% Fib). Whether price bounces for uptrend continuation at this point OR a bigger reversal (and downtrend) takes place depends on how price action behaves as it approaches and bounces off of the 38.2% Fib (and something we will analyze then).

Conclusion: for the moment I am expecting a turn around and CAD strength to emerge but it will take 2-3 weeks before such as confirmation can be expected. We will keep an eye on the USDCAD, EURCAD, and GBPCAD to warn of this potential trend change.

USDCAD weekly

How do you see the CAD pairs? Let us know your view down below!

Thanks for sharing this article and wish you many pips!

Happy Trading, Chris

 

 

The following two tabs change content below.
Chris is the head of the mentoring program and trading room at Winner's Edge Trading. He has a passion for technical analysis and helping Forex traders achieve their goals in trading. Chris has been trading for almost 10 years and is most fond of the Double Trend Trap (as a strategy), moving averages (as an indicator) and Fibonacci (as a tool).
Follow our social media:
1359774937_facebook 1359774984_linkedin 1359774949_twitter 1359774960_google 1359774973_rss 1360027635_youtube

Winner’s Edge Trading, as seen on:

Winner's Edge Trading in the news

  • Dan

    Are we still short USD/CAD?

  • Chris

    :-)

  • http://jbmaverick.wordpress.com/ Jack Maverick

    Well, you know how those Canadians are – hell, half of them speak French!

  • Chris

    Thanks Jack!! Let’s say if the Loonie could behave for once? ;)

  • Chris

    The EURCAD, GBPCAD, and AUDCAD also have the same reversal signals indeed as the USDCAD. Will be interesting to see it develop. Thanks!

  • Chris

    Thanks FX sniper for your feedback. Agree with you that the 1.09 level break would be a good bull-bear line. Thanks!

  • Fxsniper

    Eurcad, I actually have a sell limit order at 1.5400 and that one could fall harder into 1.47 area, though I am not counting on it. If I were to join the bigger trend, I would be looking to long around that low. In any case, Excellent analysis

  • Fxsniper

    Your analysis is clear and very sound. I however believe that USDCAD bigger charts make it clear that the pair is still solidly bullish and so, I would view any intraday short fall as temporary. I like to buy usdcad as low as possible. I would like to see a short term move lower towards 1.0900 . I do not expect a move down below that figure or it would be bearish in my view and by then, I should be selling as hard as possible. Specifically I would like to buy around 1.0930 with short term target of 1.1270 and long term targets into the 1.1600s/1.1800s levels. Anything below 1.0900 is completely bearish in my view.

  • http://jbmaverick.wordpress.com/ Jack Maverick

    I think you nailed this – Usd/Cad could easily reverse to the downside and fall like a rock – a very heavy rock.