Resumed Canadian Dollar Base/Reversal Could Shock in Scope

April 3, 2018 2:15PM CDT

Today's recovery above 27-Mar's 0.7815 high reinforces our base/reversal count introduced in 27-Mar's Technical Blog that calls for further and possibly extreme gains in the days, weeks and possibly even months ahead. This resumed strength leaves yesterday's 0.7735 low in its wake as the latest smaller-degree corrective low and new short-term risk parameter from which non-bearish decisions like short-covers and new bullish punts can be objectively based and managed. Former 0.7800-area resistance would be expected to hold as new support.
Today's resumption of the rebound from 19-Mar's 0.7633 low follows the important combination of a confirmed bullish divergence in momentum and a textbook 5-wave Elliott sequence down from 31-Jan's 0.8168 high to that 0.7633 low. This warns of AT LEAST correction of Jan-Mar's 0.8168 - 0.7633 decline. Given the prospect that the broader sell-off from Sep's 0.8291 high is a complete 3-wave and thus corrective structure however, this market may be in the very early stages of a resumption of 2017's major uptrend that preceded Sep-Mar's decline. In effect, such a count warns of gains above 0.83 before the market fails below 0.7633.
In addition to the relatively short-term strength discussed above, some very compelling facts in the weekly log scale chart below contribute to a base/reversal call that could be major in scope. These facts include:

  • the Managed Money community's forced capitulation of what were stubbornly long-&-wrong positions weeks after 31-Jan's 0.8168 high to what is now a 28% reading in our RJO Bullish Sentiment Index typical of major base/reversal environments
  • a virtually identical setup to the end of the May'16 - May'17 correction circled in blue below that included:
    • a 3-wave sell-off structure down from the May'16 high
    • the market's failure to sustain losses below Nov'16 obviously key 0.7360 low that ended at
    • the exact 61.8% retrace of Jan-May'16's preceding 0.6809 - 0.8025 rally
  • the past six months' price action includes:
    • a 3-wave sell-off from Sep's 0.8291 high
    • the market's failure to sustain losses below Oct'17's obviously key 0.7745 low that ended at
    • the exact 61.8% retrace of May-Sep'17's 0.7253 - 0.8291 rally.

Amidst the lowest RJO Bullish Sentiment Index since that that warned of and accompanied May'17's resumption of a major, multi-month bull market that ended up breaking the previous year's high, traders are warned not to ignore the prospect of a similarly bullish outcome until threatened by proof of labored, corrective behavior on this recovery attempt and punctuated by a confirmed bearish divergence in momentum. In lieu of these requirements, further and possibly protracted, multi-month gains in the CAD should not surprise.

These issues considered, traders are advised to move to a bullish policy and exposure from the 0.7815-level OB with a failure below 0.7735 required to negate this specific call.


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