- 4H: The USD/CAD paused at 1.05 last week and showed some signs of reversal. However, at the end of the day on Friday, the market rejected any rally attempts. (Refer to Daily Technical Update 2.12.2010 USD/CAD). It appears that maybe it is not done with the retracement cycle OR the week is starting with an exhaustion move to extend the retracement, which will by a temporary breakout from short-term support at 1.0480.
- An exhaustion move might move to 1.0450, which makes wave C 261.8% of wave A, and a extension of 138.2%. The daily will show this area as the 61.8% retracement of the previous upswing.
- The market will have to break above the current steep resistance, but more important break above the 1.0650 powerline. Then, the bullish outlook is valid.
- Daily and Weekly: The daily chart shows that the retracement might indeed extent further to the 1.0350 area (78.6% retracement). The stochastic does not show momentum turning yet, unless a sharp reversal takes place.
- The weekly chart assumes a count that starts after the market broke below parit in 2008. If this is the base for a new bullish wave, we are current in wave II, which technical can retest parity.
- However, stochastic is showing improving bullish momentum in recent weeks as it broke above 50, an important benchmark apparently in the weekly stochastic. You can observe previous uptrends and the reflection by the stochastic as it stayed above for uptrends and below for downtrends. The break above, suggests possibility of a new bullish cycle.
- If indeed the current basing action sets up for wave III in this degree, that is a major dollar strength indication heading into 2011.
- First things first, the market will have to break above the current basing action and establish a bottom above 1.08/1.09. Then the long-term bullish case can be made.
Fan Yang
Currency Analyst
Commodity Trading Advisor
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