04 Sep USD CAD Bull Flag weekend Analysis for W/C 5th Sept 2011
Approximately 18 Months ago I projected a USD CAD low in the region of 0.9400 – 0.9460
This low was subsequently achieved earlier this year but this came without any real capitulation which kept me out of the long entry I’d waited so long for. Neither did my generally reliable system give a long signal on the rise from that low, so I post this analysis with relative caution.
So far, the 0.9406 low of July 2011 has held up pretty well and for the first time in a year, or arguably 3 years if you ignore the messy failure of mid 2010, price appears to have found support above the daily 200MA.
On the weekly time frame MACD has been diverging positively since 2003 which is quite incredible.
The daily chart shows quite a nice looking bull flag consolidation as annotated on the chart below. These bullish consolidations do regularly fail as time decays them on pairs that have effectively been in very long term down trends.
So, although we need to be careful here, there are a couple of possibilities that could allow us to exploit some potential upside.
A highly aggressive trader may wish to consider longs on intraday pullbacks, or, a long from any retrace that takes price back to the base on the flag with stops just beneath the flag.
The safer option here which does risk you missing the trade altogether would be to hold out for a breakout from the flag and then buying a retest of the breakout level or a retest of the flag.
If the breakout is successful then a retest of parity is almost a certainty, and once support is found at parity it would only be a matter of time before price heads towards the 1.0300 resistance/combined 61.8% fib retrace level.
How you decide to approach such a trade is your decision based on your risk parameters and your aggressiveness. For me, I will look to run a position from intraday setups getting stop losses set to breakeven as soon as is practical. This strategy generally does result in a number of breakeven stop outs before momentum really takes off, but it stops you losing any capital, the most important aspect of trading afterall!
Ideally before entering the position I’d like to see a proper test of the 4 hourly 200 MA which presently resides at 0.9737 but it’s difficult to tell at this stage whether that will occur, and if it does, whether it will manage to support price.
I would also like to see a weekly close higher than last weeks close to really confirm that a trend change is taking place.
Things to watch:
4 hourly not yet retested it’s break above the 200 MA
Weekly chart showing 3 consecutive lower highs with last week showing a hammer sandwiched between the 20MA and 50MA
I will revisit USD:CAD if and when I decide to enter the position.