by Dave Toth
Yesterday’s clear break below 20Dec21’s 0.7713 pivotal low and lower boundary to the past NINE MONTH range confirms his range as a corrective/consolidative structure and reinstates Jun-Aug’21’s downtrend that preceded it. As we’ll detail below from a longer-term perspective, this warns of potentially extensive losses ahead that, similar to the euro, British pound and yen, could span months or even quarters.
The important by-product of this resumed bear trend is the market’s definition of last Thur’s 0.7865 high as the latest corrective high this market is now minimally required to recoup to mitigate this downside risk and a broader bearish count. Per such, 0.7865 is considered our new key risk parameter from which a bearish policy and exposure can be objectively based and managed ahead of potentially protracted losses straight away. Now-former 0.7713-to-0.7750-area support is considered new near-term resistance.
On a long-term basis, the weekly (above) and monthly (below) charts show the potential magnitude of yesterday’s break below 0.7713. From an Elliott Wave perspective, the decline from 05-Apr’s 0.8061 high is either the completing C-Wave of a major BULL market correction that could still be very deep, or the dramatic 3rd-Wave of a resumption of a bear market that dates from 2007’s 1.1043 high and would eventually target new lows below Jan’16’s 0.6809 low. Indeed, it’s easy to see a textbook example of a 3-3-5 “flat” correction from Jan’16’s 0.6809 low to Jun’21’s 0.8328 high that only retraced a Fibonacci minimum 38.2% of 2011 – 2016’s 1.0618 – 0.6809 (prospective 3rd-Wave) decline. And stemming from the upper-quarter of the past 6-YEAR range, today’s resumption of Jun-Aug’21’s downtrend warns of potentially huge, impulsive losses straight away.
As, like the Aussie dollar, the CAD is noted as a commodity currency, what this weakness could be signaling is the slowdown or breakdown in the global economy that the equity indexes have been signaling since Jan. Recent steep weakness in copper, an industrial metal, is likely due to falling demand rather than over-supply. And we’ve seen other commodities like silver, platinum, coffee, sugar, cattle, hogs, soybean meal and even nat gas take headers of late. If the most or all of the massive run-up in commodity prices is over, this does not bode well for the CAD.
These issues considered, traders are advised to move to a new bearish policy and exposure and first approach recovery attempts to 0.7700 OB as corrective selling opportunities with a recovery above 0.7865 required to negate this call and warrant its cover. In lieu of such 0.7865+ strength, further and possibly steep, protracted, even relentless losses should not surprise in the weeks and months ahead.
