USDCAD Weekly Review up to the 27 November 2007

This pair is quite interesting. While the EURUSD has not really moved down, the CAD currency has moved much lower and by so pushing this pair quite higher. Furthermore, there is no correlation between this latest move and the changes in the main commodities that Canada has, namely metals and OIL. So what happened?

Sure, there was some economic data (GDP, retail sales, etc…) but not so significant for the latest thrust up. You can even read headlines like "Provinces press Canada for action on high currency"   OTTAWA (Reuters) - Two provincial leaders stepped up pressure on Canada's federal government on Monday to come to the aid of manufacturers hurt by the strong Canadian dollar."

On the 26-11-2007 which is 17 days after the start of the rebound, and that shows how the fundamentals and sentiment are still behind the real events in the price.

We do not know the "backstage" reason but as we say in Technical Analysis: The chart is telling all. The needle sharp tail of the 7 of November, where the price bottomed at 0.9060, was the end of the last move in the great bear market that started at 1.62 (01-2002). This last move had all the characteristics of exhaustion, including the 1-2-3 trend lines pattern that rarely fails (blue lines and numbers).

How can we know in advance when such an exhaustion is about to finish? We use the "combination" theory. As we know, no one Technical Analysis item should be used to determine the end of a trend and never enter a position by indicators. Only by price.

So what do we see here that helped us to be long in time? The following combination:

1. The 1-2-3 down trend lines were in place and the price crossed the third one (green circle with 3 brown).
2. All the momentum indicators were in a grave oversold situation (The RSI was in an extreme low (12) that was not seen for years).
3. The price was following the 5 weeks price channel lower boundary and re-entered towards the middle ground.
4. There was an attempt that failed before. (Green box with brown 2).

What can we expect in the immediate future? The rebound was quite swift but it should reach at least the minimum target of 1.05 (50% retracement) with some obstacles on the way like the trend line 2 and the descending 200 MA. Is this a new trend up? No. Only a series of higher highs and higher lows could determine that.

And as we said in the opening of this piece, this is happening BEFORE a real reversal in the US Dollar.



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Moshe Shalom Head of Technical Analysis Department ForexManage Ltd Site: www.forexmanage.com Email: This email address is being protected from spam bots, you need Javascript enabled to view it