Forex Technical Update

CAD Punished After Low Inflation Numbers (7/22)

USD/CAD 7/25/2011 4H chart
0.9520 Resistance:
- After being punished by flatter than expected inflation data, the loonie, or Canadian Dollar is resuming its bullish stance against the USD.
- The market respected a previous pivot at 0.9520 despite a briefly and insignificantly breaking it.
Double Top and Negative Reversal:
- From this resistance at 0.9520, we have a double top seen in the 4H chart.
- The RSI reading in the 4H chart is held below 60, and a break back below 40 is a good sign that the bearish momentum is intact, and if the reading falls below 30, we have momentum confirmation for the bearish continuation scenario.
- Price action falling back below 0.9423 would be a strong bearish continuation signal since there was such a strong bullish attempt from this low to end last week.
- A negative reversal signal is given when the RSI is rising up from the oversold levels, making new highs, but the price highs fail to do so. A swing projection from this signal is shown by the 4H chart, targeting 0.9315.
- The daily chart shows the 0.9320 level as possible support (this is a weekly close back when the market made record lows). The record low is at 0.9056, and is the current bearish target.
- Only a break above the 0.9640 pivot should start any consideration for a bullish reversal.
Loonie for Safety?
- Is the CAD turning into a safe haven?
- The idea of the Loonie as a safety demand in times of uncertainty and a failing US economy can be legitimate, but remember that the Canadian economy is very interconnected with the US economy, especially as US is the main importer of its oil.
- Oil prices have been more or less flat the last couple of weeks. If there is a bullish breakout in oil prices, the CAD will have more wind on its back.
USD/cAD Daily Chart 7/25/2011

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Fan Yang CMT
Chief Technical Strategist