Wednesday, January 19, 2011

USDCAD—can't reach daily 10 SMA

.9984 was yesterday's high which rebuffed it again this morning. I closed the remainder of my .9860 trade for +40 pips. In an over-excited market for the Euro, it's not likely this pair can get far. I shorted at .9898.

I won't bet the bank on it falling too far but there are some ominous patterns. First, an ABC on the hourly yesterday, targeted .9966 if C equaled A (.9745 if it was 1.618A). Since it faltered at .9935, it looks as though this short-term may be over.

Second, if one looks back on the daily chart, there is a triangle that began 4/21/2009 and which the pair penetrated below this past October. It retested the lower boundary for some time and then seems to have begun declining in earnest down to this week's low of .9838. The price target from this triangle is a .9549. I never look at just one thing but when I was running some fibs late yesterday, I discovered that .9561 is the .618 retracement of .9058 (2007) to 1.0374. The two prices are very close together. The downtrend line I began drawing 12/21/10 comes in around this level as well if I extend it. I also have targets from Point & Figure charts that are lower than this although I think they're somewhat unrealistic.

What about the wedge pattern I wrote about yesterday? It's there. Wedges can occur during long downtrends. As I wrote yesterday, in a declining wedge, prices generally break upwards because the steep angle is difficult to maintain.

If one considers it as an Elliott ending diagonal then as price action narrows in the fifth wave, it breaks upwards. I've marked waves one through four which I believe ended with yesterday's high. Now this five of five should break down no further than .9805 or so. Price would then break up and out. There's a rule for ending diagonals that says wave four always ends in the territory of wave one. If it ended with yesterday's high it has not done so. Prechter and Frost's book on Elliott Wave Principle note one exception to this so I'm not sure how they can call it a rule but there you go. Otherwise this qualifies if you consider it occurring in the fifth wave down from the 1.3065 high in March 2009. OK, if that's what it is then prices will break upwards fairly soon, the pair will overtake its daily 10 SMA (currently .9907) and there will be a nice rise in prices. One has to see the break happen first, with a close above .9947. Same is true if we drop the Elliott blah-blah and just treat it as a wedge. If it does break upwards, there's a zone of resistance in this area up to parity, consisting of moving averages, price highs and lows, and fib confluence.

There's also a slight positive divergence on the daily chart although divergence is everywhere it seems and this one has been going on since last March.

Bottom line, I'm short with a tolerable stop (not too much risk even if it breaks upward). We will have to see.

Here's the daily chart:

© Dianne Fecteau, 2010. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

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