S-T Mo Failure Stems USDCAD Rally, But Setback Approached as Corrective Buying Opp

October 16, 2017 9:13AM CDT

The market's failure Wed below 04-Oct's 1.2448 corrective low and short-term risk parameter we identified in 06-Oct's Technical Blog confirms a bearish divergence in momentum and leaves that day's 1.2598 high in its wake as the END of a 5-Wave Elliott sequence from 08-Sep's 1.2060 low from which non-bullish decisions like long-covers can be objectively based and managed.  We are considering 1.2600 as our new short-term risk parameter.  Against the backdrop of what we believe is a MAJOR BASE/reversal environment however, traders are advised to first approach expected lateral-to-lower prices in the period ahead as a corrective buying opportunity that could have long-term implications.

Canada Dollar 240 min Chart


Canada Dollar Daily Chart

The daily chart above shows the bearish divergence in momentum that breaks the recent rally and exposes a move lower as long as that 1.2598 high remains intact.  From a long-term perspective however we believe a major base/reversal environment is at hand.  This environment is predicated on:

  • the market's failure thus far to sustain late-Aug/early-Sep losses below key 1.24-handle-area support-turned-resistance
  • an arguably complete 5-wave Elliott sequence down from May's 1.3794 high amidst
  • historically frothy and even stubborn bullish sentiment levels DESPITE Sep-Oct's 1.2060 - 1.2598 rally.

Canada Dollar Weekly Chart


Indeed, the current 84% reading in our RJO Bullish Sentiment Index is the most egregious amount of bullishness by the Managed Money community in nearly FIVE YEARS and has even moved higher despite the Sep-Oct decline in the CAD contract shown in the monthly active-continuation chart below.  Combined with the bullet points listed above and Fibonacci fact that the 2016-17 recovery attempt stalled within ticks of the (0.8264) 38.2% retrace of the entire 2011 - 2016 decline from 1.0618 to 0.6809 in the contract, it's not hard to find technical facts that warn of a major peak/reversal threat in the contract and base/reversal threat in the cash USDCAD.

These issues considered, long-term players remain advised to maintain a bullish policy and exposure with a failure below 1.2060 required to negate this call.  Shorter-term traders have been advised to move to a neutral/sideline position for the time being ahead of what we believe is an interim correction lower within the broader base/reversal PROCESS.  Following a bullish divergence in short-term mo from 1.2330-area prices or lower and/or resumed strength above 1.2600, traders are advised to re-establish bullish-USD exposure ahead of what could be steep, even relentless gains thereafter.

Canada Dollar Monthly Chart

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgement at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

Distribution in some jurisdictions may be prohibited or restricted by law. Persons in possession of this communication indirectly should inform themselves about and observe any such prohibition or restrictions. To the extent that you have received this communication indirectly and solicitations are prohibited in your jurisdiction with registration, the market commentary in this communication should not be considered a solicitation.