Sive Morten
Special Consultant to the FPA
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Fundamentals
Today, guys we will take a look at CAD instead of gold. Here we will use a specific type of analysis, which is cross-sector and take a look at Crude Oil. But first - some words on CAD statistics. Previously we've talked a lot about NAFTA and tariffs issues. Now they take backseat as it seems that some compromise will be found. But declines for the loonie came even as Canada and Mexico said good progress had been made in talks with the United States to modernize the North American Free Trade Agreement (NAFTA).
Second issue that we've discussed is flat BoC policy. As May is coming and this is the month of rate decision, it seems that chances on rate increase stands low:
As Reuters reports - "the Canadian dollar weakened to an 11-day low against its U.S. counterpart on Friday after data showing domestic inflation rose at a slower-than-forecast pace further reduced expectations for an interest rate hike next month from the Bank of Canada. Canada's annual inflation rate in March edged up to 2.3 percent from 2.2 percent in February, the highest level in more than three years, Statistics Canada said. Analysts had forecast a 2.4 percent annual inflation rise.
The Bank of Canada left its benchmark interest rate on hold at 1.25 percent on Wednesday and said it did not know when or how aggressive it would need to be to keep inflation in check.
Chances of an interest rate hike in May have fallen to 27 percent from about 40 percent before the rate announcement."
Now to cross-section analysis. Everybody knows about tight relation between CAD and Crude Oil. Recently Crude Oil behaved rather well which provided good support to CAD and has become one of the major factors for CAD rally, as we've discussed in our previous research
Why we need to talk on CAD right now, because situation there could change very soon. Financial markets very often shows reaction a bit earlier than commodities, and crude oil stands one step from our major target. Setup on crude oil was so important, that we've prepared separate weekly research to it. Analysis that we've made there has worked good and now it is coming to an end. Crude stands near monthly target:
Upward action is slowed, because price struggles with weekly Overbought. Since our B&B "Buy" trade has started (I keep this chart unchanged) - upside action could be finalized by clear butterfly "Sell" pattern:
You could ask - what relation to CAD all this stuff has? If you carefully read our previous analysis, we've talked about deep upside retracement that should happen, because market has too strong upside momentum (I mean CAD/USD), which can't be ignored and faded in a blink of an eye. It needs some reverse action. This will let you to take short position, if you've missed initial chances to do it. And current upside action on CAD could be the beginning of this retracement.
COT Report
CFTC data gives nothing new as reversal on CAD is just started. Investors keep net short on CAD, but it stands stable last 4 weeks and not at extreme level:
Technicals
Monthly
Here I keep the link to first research on this subject that was started more than month ago.
CAD has completed first leg down out from 1.3130 weekly resistance. Meantime, monthly CAD keep standing in "Sell" mode, standing in retracement up from strong monthly K-support and Agreement, as downside OP has been hit.
Our context for trading is based here on AB-CD upside retracement and "222" Sell pattern. Setup will be valid until price stands below recent top and keeps trend bearish. As there is just one week till the end of the April, here we need to keep an eye on possible bearish grabber. It could confirm downside action to 1.22 area.
Invalidation point for this setup stands around 1.3130 highs. If grabber will not be formed and price will turn bullish - it could mean that downside retracement is over and CAD could proceed higher, for example, following to our larger scale scenario - larger "222" Buy right from K-support area.
Weekly
To be honest, guys, setup that we have on weekly chart overextends our suggestion of just deep upside retracement. In fact it could turn everything from top to bottom and make upside continuation on monthly chart real.
As first drop out from strong resistance and Agreement was good, now it has stopped. Two weeks ago CAD has formed bullish grabber. Last week we do not have a grabber but overall price action and appearing of bullish engulfing pattern makes us to expect something serious.
In such circumstances it would be better to not go short. In fact, grabber that has been formed here suggests action above previous top, i.e. above 1.3125. It means that ultimately, we could get no grabber on monthly chart and indeed upside action could continue. So, risk factor stands in place. Right now it is mostly impossible to say - whether it will be just W&R of previous top, or, real upside continuation. One thing we could say definitely - it is not time yet to take position on downside continuation.
Daily
Daily trend has turned bullish. Within 1-2 weeks we could get a lot of patterns of different scale for trading. Thus, we already have in place weekly grabber and engulfing pattern right at major daily 5/8 Fib support. It means that upside action will take the shape of AB=CD pattern.
Second moment, it is time to recall our uncompleted XOP target. Previously it was really source of disturbing for us. Initially we thought that market will completed and then turn down, but this has not happened. Now this XOP gets special meaning in the light of weekly grabber... As it has theoretical target above 1.3125 - it makes possible XOP completion.
That's why right now we should take off the table thoughts on re-establishing of short positions. We could make suggestions on possible large AB=CD down etc., but currently it looks too blur. On coming week upside action will stand in major focus.
Intraday
Now intraday setup mostly will be interesting for those who have bullish view on CAD and want to go long.
In the beginning of the week CAD could move slightly higher to complete XOP target around K-resist
ance area:
After that pullback should start. This could happen simultaneously with Crude oil upside continuation as it has not hit major target yet for few cents as we saw on the chart in the beginning of research. This should be the time of decision making - whether to go long or not. Currently, it seems that 1.2680 area will be interesting - K-support around WPP. If it will be accompanied by some pattern, say, "222" Buy - all the better.
Conclusion:
So, CAD has completed first leg down, but future of second one now stands blur as already some patterns exists that put this perspective under question.
Meantime, now it's not a second leg down but upside retracement stands on the table, that coming week will be dedicated to.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
Today, guys we will take a look at CAD instead of gold. Here we will use a specific type of analysis, which is cross-sector and take a look at Crude Oil. But first - some words on CAD statistics. Previously we've talked a lot about NAFTA and tariffs issues. Now they take backseat as it seems that some compromise will be found. But declines for the loonie came even as Canada and Mexico said good progress had been made in talks with the United States to modernize the North American Free Trade Agreement (NAFTA).
Second issue that we've discussed is flat BoC policy. As May is coming and this is the month of rate decision, it seems that chances on rate increase stands low:
As Reuters reports - "the Canadian dollar weakened to an 11-day low against its U.S. counterpart on Friday after data showing domestic inflation rose at a slower-than-forecast pace further reduced expectations for an interest rate hike next month from the Bank of Canada. Canada's annual inflation rate in March edged up to 2.3 percent from 2.2 percent in February, the highest level in more than three years, Statistics Canada said. Analysts had forecast a 2.4 percent annual inflation rise.
The Bank of Canada left its benchmark interest rate on hold at 1.25 percent on Wednesday and said it did not know when or how aggressive it would need to be to keep inflation in check.
Chances of an interest rate hike in May have fallen to 27 percent from about 40 percent before the rate announcement."
Now to cross-section analysis. Everybody knows about tight relation between CAD and Crude Oil. Recently Crude Oil behaved rather well which provided good support to CAD and has become one of the major factors for CAD rally, as we've discussed in our previous research
Why we need to talk on CAD right now, because situation there could change very soon. Financial markets very often shows reaction a bit earlier than commodities, and crude oil stands one step from our major target. Setup on crude oil was so important, that we've prepared separate weekly research to it. Analysis that we've made there has worked good and now it is coming to an end. Crude stands near monthly target:
Upward action is slowed, because price struggles with weekly Overbought. Since our B&B "Buy" trade has started (I keep this chart unchanged) - upside action could be finalized by clear butterfly "Sell" pattern:
You could ask - what relation to CAD all this stuff has? If you carefully read our previous analysis, we've talked about deep upside retracement that should happen, because market has too strong upside momentum (I mean CAD/USD), which can't be ignored and faded in a blink of an eye. It needs some reverse action. This will let you to take short position, if you've missed initial chances to do it. And current upside action on CAD could be the beginning of this retracement.
COT Report
CFTC data gives nothing new as reversal on CAD is just started. Investors keep net short on CAD, but it stands stable last 4 weeks and not at extreme level:
Technicals
Monthly
Here I keep the link to first research on this subject that was started more than month ago.
CAD has completed first leg down out from 1.3130 weekly resistance. Meantime, monthly CAD keep standing in "Sell" mode, standing in retracement up from strong monthly K-support and Agreement, as downside OP has been hit.
Our context for trading is based here on AB-CD upside retracement and "222" Sell pattern. Setup will be valid until price stands below recent top and keeps trend bearish. As there is just one week till the end of the April, here we need to keep an eye on possible bearish grabber. It could confirm downside action to 1.22 area.
Invalidation point for this setup stands around 1.3130 highs. If grabber will not be formed and price will turn bullish - it could mean that downside retracement is over and CAD could proceed higher, for example, following to our larger scale scenario - larger "222" Buy right from K-support area.
Weekly
To be honest, guys, setup that we have on weekly chart overextends our suggestion of just deep upside retracement. In fact it could turn everything from top to bottom and make upside continuation on monthly chart real.
As first drop out from strong resistance and Agreement was good, now it has stopped. Two weeks ago CAD has formed bullish grabber. Last week we do not have a grabber but overall price action and appearing of bullish engulfing pattern makes us to expect something serious.
In such circumstances it would be better to not go short. In fact, grabber that has been formed here suggests action above previous top, i.e. above 1.3125. It means that ultimately, we could get no grabber on monthly chart and indeed upside action could continue. So, risk factor stands in place. Right now it is mostly impossible to say - whether it will be just W&R of previous top, or, real upside continuation. One thing we could say definitely - it is not time yet to take position on downside continuation.
Daily
Daily trend has turned bullish. Within 1-2 weeks we could get a lot of patterns of different scale for trading. Thus, we already have in place weekly grabber and engulfing pattern right at major daily 5/8 Fib support. It means that upside action will take the shape of AB=CD pattern.
Second moment, it is time to recall our uncompleted XOP target. Previously it was really source of disturbing for us. Initially we thought that market will completed and then turn down, but this has not happened. Now this XOP gets special meaning in the light of weekly grabber... As it has theoretical target above 1.3125 - it makes possible XOP completion.
That's why right now we should take off the table thoughts on re-establishing of short positions. We could make suggestions on possible large AB=CD down etc., but currently it looks too blur. On coming week upside action will stand in major focus.
Intraday
Now intraday setup mostly will be interesting for those who have bullish view on CAD and want to go long.
In the beginning of the week CAD could move slightly higher to complete XOP target around K-resist
ance area:
After that pullback should start. This could happen simultaneously with Crude oil upside continuation as it has not hit major target yet for few cents as we saw on the chart in the beginning of research. This should be the time of decision making - whether to go long or not. Currently, it seems that 1.2680 area will be interesting - K-support around WPP. If it will be accompanied by some pattern, say, "222" Buy - all the better.
Conclusion:
So, CAD has completed first leg down, but future of second one now stands blur as already some patterns exists that put this perspective under question.
Meantime, now it's not a second leg down but upside retracement stands on the table, that coming week will be dedicated to.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.