Despite its status as a growth currency, the Canadian dollar is holding up relatively well early in this week’s trading. To us, this looks more like a reflection of a slumbering, mid-summer market than any reflection about Canada’s economic strength.

Usually, the Canadian dollar moves in tandem with the Australian and New Zealand dollars but we’re not seeing that today. Instead, USD/CAD is chopping close to unchanged. Typically, when European and North American traders get to their desks, the pair will play catch-up. This is especially the case at this time of year when many traders are on vacation. That makes it a great time for independent traders to front-run the market.

On a daily charting basis, CAD  is carving out a wedge formation. Friday’s bullish hammer reversal candlestick points to further gains but they may be capped at psychological and downtrend resistance at 1.0494 – 1.0500. We feel like this chart is gearing up for a huge move but it may take some time to develop.

USD/CAD attempted to break down below support yesterday but was harshly rejected. The fresh uptrend has continued in today’s session and the technical outlook is looking increasingly bullish.

We can see a rough outline of a hammer reversal pattern yesterday and a more clearly defined hammer today. Support comes in at the 100-day moving average (purple) along with the Jule low of 1.0277 and uptrend support from the low in April.

Initial resistance resides at the 200-day moving average (red) but we don’t think that will pose a serious hazard to bulls. Instead, look for an inital rise to downtrend resistance at around 1.0570. Place stops below the 100-day moving average as another test below will likely see follow through.

One week ago, we talked about the potential for USD/CAD to rally and that is exactly what has happened. The initial catalyst was a soft report on Canadian retail sales but the broader move has been driven by international worries about a double-dip recession.

We noted that Canadian fundamentals remained strong but when we looked at the chart, it was clear the U.S. dollar wanted to go higher against CAD. What happened? We have rallied from 1.0393 to 1.0639.

The 200-day moving average has given way, downtrend resistance was only a hiccup and we are nearing our initial target of 1.0678. We would take profits on longs initiated below 1.0450 because we think there will be some consolidation here. We see a push to 1.0650 in the coming day but expect that to be the top for the next 2-5 sessions. Initiate shorts at 1.0650 or look for a pullback toward 1.0550 as an opportunity to establish fresh longs for a push toward our eventual target of 1.0850.

Yesterday we talked about cutting gold long and waiting for better levels to buy. What happened? Gold fell 1%. We still look for more attractive levels and will be buying at $1200 and continuing to evaluate any moves to the upside.

Today, we are struggling to find a clear trend to latch on to. The charts are not sending a great deal of clear buy or sell signals. Nowhere is this more clear than in USD/CAD.

We don’t see anything here that is sending a clear, short-term signal. We know that the long-term trend is down but we are seeing some sideways indications lately and we’re worried about another push to 1.08.

USD/CAD probed the downside today but we had a sound rejection well above support at 1.0333. That move has got us thinking about entering into a long position but we don’t see the right risk/reward ratio. We could see a track up to 1.0580 or 1.0600 but on the downside we want to see 1.0333 broken before we get bearish.

Looking at other charts, it’s similar. There is not a great deal of momentum anywhere. We take that as a signal that the market is unsure. Traders are looking for clear reasons to buy and sell.

In the day ahead we have the ECB and BOE interest rate decisions. That could be a catalyst. Our bias is that risk aversion is on the way up. Stock markets were set up for a nice move higher today but wilted. We will wait for clearer signals.

First, we would like to update yesterday’s post. We noted that USD/JPY was gearing up for a big move and that is exactly what happened. We were cautious on the early move (especially since we had a slight bias to the downside) but once the news that Japan’s Prime Minister quitting hit, we knew which way this pair was heading. His replacement will likely be Fiannce Minister Naoto Kan, who has been quoted as saying he prefers a weaker yen. It seems as though the technicals and fundamentals are aligning for this trade. A strong U.S. non-farm payrolls report on Friday will likely lead to another leg higher.

The U.S. dollar has been strong today but it has been badly outpaced by it’s northern neighbour as Canada’s loonie has led the forex market. If we get a daily close below 1.0414 we see it as a bearish signal.

The Bank of Canada hiked interest rates on Tuesday but didn’t commit to further rate hikes and we saw a disappointment trade combined with a risk averse environment that left a negative technical picture. We were thinking about entering longs but today’s impressive rally in CAD has taken us aback.

We are now back below the key 200-day moving average. The pair is about to hit some significant technical support at the 100dma (1.0330) followed by trendline support and the old range bottom of 1.0205.

Still, we find it very hard to be long USD/CAD after today’s price action. We caution against agressive shorts because today’s move seems so out of the ordinary. A close above 1.0414 and we might wade into a long position with a very tight stop. If we close below that level we start looking for ways to short the pair.

The trend is your friend. We have heard that axiom so many times and we still feel like it can’t be repeated enough when we see a trend like this.

Notice the beautiful, consistent downtrend in this pair. We also have to note that this was the worst performing pair over the past week. It fell 810 pips from top to bottom.

We are now bouncing off the bottom of the channel. Despite the problems in Europe, we see the potential for a bounce here and believe that aggressive traders might want to wade into long positions, with very tight stop losses.

The RSI is not yet extremely oversold but, at 23, it’s close. We’re not sure whether a bounce will come from euro strength or Canadian dollar weakness. We are long-term CAD bulls but the action over the past week concerns us. CAD was the weakest performer on Friday and closed above some key resistance levels. Oil also continues to struggle.

The Australian dollar fell to an 8-month low today against the Canadian dollar, breaching technical support and breaking out of a 3-cent range. This commodity currency cross is one of the least volatile trades in the forex market because eliminates much of the ‘risk’ trade and allows market participants to focus on the relative strengths of Australia and Canada. Last week, Canada posted the largest one-month gain in jobs in history and that has increased speculation that the Bank of Canada will hike interest rates in June. On May 12, Australia will reveal its April jobs report. The market is expecting  22.5K new jobs. The strength of the report will be a big factor in whether the Reserve Bank of Australia raises interest rates. The market, however, is showing that it expects the Bank of Canada to hike rates more than the RBA in the coming 18 months.

As we can see, the pair carved out a rough range between 0.9178 and 0.9475 (297 pips) since the start of the year. Today, the range broke to the downside after higher-than-expected Chinese CPI cooled optimism for the Asia-Pacific region. Technically, the measured target of the range and breakout is 0.8881, which corresponds very well with the 38.2% Fibonacci retracement of the huge March 2009 to Nov. 2009 rally at 0.8867. Other support includes the July 2009 major low of 0.8796 and the Aug. 2009 low of 0.8983.

Short-term momentum indicators show the pair as oversold. The RSI has fallen to 28.70 and we are beyond the lower reaches of the Bollinger bands. That indicates that the market is potentially oversold in extremely short-term durations. It should be noted, however, that momentum indicators usually flash overbought/oversold signals after a range break.

Beward of tonight’s Austrlian employment report.

USD/CAD was unable to retake the 1.02 handle in two attempts earlier in the week and has once again turned lower. The conditions are now right for further USD/CAD declines and likely a new low.

The move higher in the USD touched off the upper Bollinger Band but was unable to close at that level. With risk appetite looking strong and the potential for a huge bailout for Greece, we think Canada’s currency stands to gain.

The RSI shows absolutely no oversold conditions in the U.S. dollar. Our first target is the cycle low at 0.9936. That will likely be tested in Friday’s session or on Monday. We will be trading this with a very tight stop at 1.01. A rally above there will most likely lead to a third test at 1.02.

We have to give ourselves a big pat on the back for yesterday’s call on CAD/JPY. It was the best trade in the forex market over the past day as it rallied 237 pips.

Here is the updated chart:

There is nothing not to like about this chart. The sell off on Friday is followed by a perfect morning star formation with a close above Friday’s open. Moreover, the move higher stalled just at the former support line. We said yesterday that our initial target was 93.50 and the market topped out at 93.60 before pulling back.

The catalyst for the move higher in CAD was a hawkish Bank of Canada statement. We foreshadowed this in yesterday’s note. Here is what the BOC said about its conditional committment to keep rates low until the end of Q2: “The need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus.” 

For the yen, the catalyst for the slump was the positive tone in equity markets. Stocks worldwide have rallied about 1%.

Now that we’ve taken up plenty of space lauding our efforts (we wish they all went this perfectly) the question is, where do we go from here?

We continue to like long CAD positions. The absolute best time to buy a currency is when a central bank embarks on a tightening cycle. Here we are at the very precipice of what could be a long-term move higher in interest rates.

In the short-term, however, the situation might be stretched. We will definitely be holding long positions but looking to add on any weakness for a move to our target of 100. The market is struggling at the aforementioned trend resistance and we may see some consolidation down to 92.80. That would be our initial buy point. We would cover on a move down to 92.50 because that would target 92.05. If we do see a move to the low 92s, we will be adding agressively.

Friday’s washout in CAD/JPY sent the pair down to key support. Today’ we traded below that support level early in teh session but later rallied to close higher. The rebound coincided with significant support, including the top of 80-90 range that was in place from June 2008 to mid-March 2010. It also touched off the 38.2% fibonacci retracement level of the rally we have seen since late February.

This chart looks very positive to us, as long as it stays above 90.00. That leaves a downside of 107 pips. On the upside, we see the potential for the chart to rally to 100 with 93.50 as an initial target.

The major risk in the next day is the Bank of Canada decision. We believe this chart is incorporating the hawkish bias we expect from the BOC. Policymakers in Canada have committed to keeping rates low until the end of the second quarter but with June fast approaching, we expect the Bank of Canada to show the first indications that it will embark on a rate-hiking cycle starting in July.

The risk is that the Bank of Canada emphasizes that it wants to continue to keep interest rates low. In that case, CAD/JPY could fall very quickly and we would want to exit the trade and re-evaluate.

CAD/JPY is like a runaway train. It has gone nearly straight upward since the beginning of March. We have been monitoring this and on March 11, with CAD/JPY at 88.42 we wrote that: “We really like CAD/JPY and see 90.00 as a relatively easy target.”

It was an easy target as it rallied to 90 one week later and was never out of the money. After that, however, was when things really got interesting.

Since March 23, CAD/JPY has had only one losing session and has gained nearly 600 pips, creating a parabolic chart.

We know one thing about parabolic charts — you don’t fight them. When a chart is as powerful as CAD/JPY, there is no telling when it will end. There will be analysts who come out and say it’s overbought and say to wait for a pullback. Meanwhile, the market goes higher and higher.

USD/CAD has opened the week on the defensive and is nearing a third test of a key level protecting parity.

USD/CAD has been in a clear downtrend for more than a week after popping above 1.03 on a re-test of the old 1.03-1.07 range. That failure set up a renewed push toward parity. That move failed on April 1 as support in the 1.0066 range held.

The inability to break lower generated some buying interest but the downtrend resistance on the hourly chart kicked in and the sellers took charge early in this week’s session in an indication of what is likely to come.

We are now back just above 1.0060. Expect a wave of sellers to push USD/CAD to parity – and eventually beyond —  if this key level breaks.

USD/CAD has formed a short-term head and shoulders reversal pattern that targets a re-test of last week’s low of 1.0060.

The set-up for the Canadian dollar is looking good on Friday’s session. European leaders appear to have cleared up some of the uncertainty regarding Greece and that could lead to a ‘risk-on’ session.

With a stop at 1.0250 and a take profit at 1.0080, this trade has a potential loss of 38 pips and a potential gain of 130 pips so it stacks up right for us. Selling USD/CAD has been a good trade for us all the way down and this is a new, and attractive tactical entry.

We have been pounding away at USD/CAD on this blog for months. We have been almost relentlessly bearish on USD/CAD and the push nearly to parity last week validated our long-held stand.

After the recent three-day relief rally in USD/CAD , the market is set-up for a breakdown.

There are several things working towards a lower CAD:

- U.S. stocks rallied to a fresh 17-month high on Tuesday and the risk appetite trade is looking as strong as it has this year.

- Oil is at $81 and withing range of the cycle high of $83.16. A break higher would undoubtably add to the CAD’s momentum

- Similarly, copper appears ready for a bullish run. It formed a bullish hammer pattern on the daily charts on Tuesday and has been making higher lows.

- On Wednesday, Bank of Canada Governor Mark Carney is speaking in Ottawa. After the twin failures to stay a above 1.02 this week, USD/CAD is set-up for a bearish breakdown lower if Carney signals that the BOC is ready to start hiking rates.

- Further, the technical picture remains moderately oversold but as the Bollinger Bands show, the conditions have been relieved somewhat. We can’t rule out a rebound to 1.0350 or even 1.0400 but we feel like the risk of missing a move to well below parity makes it worth taking. We will be adding to shorts all the way up to 1.04 but would have to start covering above that.

- One thing that gives us pause is the massive short positioning in the CFTC data in USD/CAD. We fear a short-cover rally but we also feared the same thing in EUR/USD and thus far, it has failed to materialize.

Whippy markets can be both profitable and fileld with pitfalls as we have seen over the past week. Extreme volatility in GBP has been a difficult trade that fortunately we were able to profit from before giving a small portion of our gains back.  Still, the highly volatile action in GB and EUR has left us looking for something with a bit more directional bias.

For a low volatility trade, little beats AUD/CAD. These two almost always move in tandem against other currencies but also trade against each other. Lately, AUD is looking tired against the Canadian dollar.

Stochastics are sendign mixed signals but the AUD has now fallen below the 200-day, 100-day and 50-day moving averages as well as tracing out a convincing downtrend since peaking at 99 cents.

This gives us an opportunity to set up a short AUD/CAD trade with a stop at 0.9450 and a target of 0.9000.

Fundamentally, the market is just starting to price in Bank of Canada rate hikes, while having already fully priced in a further 100 basis point hike to 5.00% from the RBA. We feel that if the risk trade falls apart the 100 basis points that have have been priced in from the RBA are vulnerable. Meanwhile, the measley 25 basis points priced in for the BOC won’t have as big of an effect. On the other side, if we continue to see strong global growth, the BOC will inevitable close the 375 basis point spread between central banks.

The forex market is keeping a very close on the Canadian dollar at the moment. USD/CAD is approacing the October low of 1.0207 and there will almost certainly be a breakdown if we can close below that level.

Elsewhere, the stars a beginning to align for CAD strength. Oil is above $80 and in a solid uptrend, stocks are near the 52-week highs and M&A activity is starting to pick up.

We can’t help but like the CAD/JPY chart.

The pair has been in a fairly well-defined range of roughly 79-90 for the past year. Most recently, however, we have seen a succession of lower lows. Now, we have broken through resistance at 88.44 and are trading at 88.42 currently.

The initial break came yesterday but the market eventually closed below the resistance. Today, with just an hour of trading left, thait will be another battle. If we close above 88.44, we really like CAD/JPY and see 90.00 as a relatively easy target.

The Canadian dollar was the top-performing major currency on Wednesday but we would look to sell the strength.

USD/CAD is the most compelling chart we see among the majors. It has formed a clear double-top bottom on the daily chart and the recent two-day pullback looks like a good entry point.

The double bottom comes in around 1.02 at it was confirmed by the early January rally in the pair. The measured target of the move is 1.15 and that’s where we think this pair is going.

In the shorter-term, we have seen USD/CAD struggle to break above 1.0780 and there is resistance beyond that at 1.0872. These remain as significant hurdles and we will manage risk around them.

On the downside, there is some support at 1.0545 and we will put our stops here. That limits the downside to about 80 pips from the current level with a minimum upside of 140 pips and potentially 900 pips.

Adding to our conviction is the oil chart. We have seen oil bounce after falling on huge volume on Friday. It is now nearing its 100-day moving average at $75.73 and that will be resistance; as will be $77.

Risk assets have improved since Obama took the podium to deliver his first State of the Union address. There was nothing particularily bullish about the speech but stock futures took off, the euro rebounded from below 1.40 and USD/CAD has formed a short-term triple-top.

The parameters of the short-term top are 1.0691 to 1.0591 — a perfect 100 pip range that has been tested three times on the topside and three times on the bottom. The pair is often prone to range trades and we will be keeping an eye on this one because a breakout will likely prove forceful.

On the downside, we have the 100-hour moving average as support as well as the support at 1.0591. We would expect a fall below this support to target at least 1.0500 with 1.0460 as the preferred scenario.

On the topside, the market is facing strong resistance at 1.0750, so we would be prone to taking profits quickly on a breakout. But we would also be eager to buy a break of 1.0750 with 1.0850 as a target.

Overall, we have seen a substantial rally in USD/CAD since falling to 1.02 in the middle of January.  The daily chart shows a nice double-bottom, however, and we would prefer to be buyers as long as it remains above 1.04. We would see a correction to 1.0450 as an ideal buying opportunity.

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We hate to pump our own tires too much but it has been a good week for fxbeer.com and it’s only Wednesday. Our short EUR/GBP call on Monday is up 145 pips and our short EUR/USD call a day ago has been sensational, up 184 pips. In total, that’s 329 pips in 48 hours and while we would certainly take some short-term profits, the trades still look like winners.

Today we’re going to step away from the euro and look to North America. The commodity currencies got hit hard on Wednesday in an exciting day of trading and the most volatile session on the year. The kiwi was the worst-performing currency but the Canadian dollar was close behind and blew through resistance, with USD/CAD rising more than 150 pips.

This move has caught is by surprise as we are big, long-term CAD bulls. We will never fight a chart though and this one has turned against the CAD in a big way.

We can see that the stochasics on the bottom chart are showing a buy signal and the RSI still has some way to go before it’s into oversold territory.

The huge reversal today above key resistance at 1.0406 to as high as 1.0487 is a buy signal. We would have liked to see a close near the highs but still think this move targets 1.0582, and if that breaks, likely to 1.0743 as we re-enter the Nov-Dec trading range.

On the bottom of the daily chart we see that there is now the potential for a double-bottom that could target as high as 1.14. We’re not quiet ready to go there yet because of the price action on Oct. 20 and 21.

You can see a very similar move to the once we saw today on Oct. 20, extending into Oct. 21, when USD/CAD rose to 1.0582 before we saw a minor retracement. The pair eventually rose all the way to 1.0850. We will be keeping a close eye on price action in the day ahead. If we can see a close above 1.0441 we will certainly be encouraged.

In the short-term, look at 1.0406 as support with resistance at 1.0489-1.05. We expect to see some consolidation in the Asia-Pac and European sessions before a convincing move on Thursday (likely higher).

We are in the midst of a powerful reversal in USD/CAD.

After breaking key support at 1.0406 and falling as low as 1.0367, we have seen an immediate and powerful reversal to as high as 1.0578 today — a more than 200 pip move in just over 24 hours.

The reversal has created a bullish reversal pattern on the daily chart.

The final three candlesticks create a textbook hammer reversal pattern that is confirmed by a bullish engulfing candle. Reversal patterns really don’t come any more clearly than this one but further confirmation would come with a close above 1.0509. If that’s the case, a retest of the top of the range at 1.0750 will be the favoured scenario.