Contract:      June 6C
Action:        Stand Down
Signal Expiry: WATCH

We have ourselves an opportunity. Not one that we’ll be able to take advantage of in the next day or two, but one that we’ll be able to play in the not-so-distant future.

The Canadian Dollar is at a tipping point. Notice that on the daily chart that for the last few days prices have been flirting with support, a price floor that has remained intact for about 6 months. That’s the downside.

Now look to the upside. Friday’s action took prices to the 20 day moving average, which after briefly breaking through, came back down. There’s your resistance.

We have static support in place – the a horizontal line, and we have resistance which happens to be dynamic, and converging in on our support! Prices are being compressed bigtime as sellers of the 20 day average move closer and closer to the buyers at support.

Sooner or later, either supply or demand will take over. I can guarantee you this. Prices will not stay here much longer. Ok then, you say, which way is it going to break? I have no idea! But let’s look at a few clues left behind on the weekly chart.

Firstly, notice the distance away current prices are from their annual average price. The huge run up in the USD has driven many currencies far lower than they probably should be. That gives lots’ of room to the upside for prices to “revert to the mean” – which eventualy they will, one way or the other.

Now for that reversing candle. Last week prices opened at around 7776. They came down to support and printed a low price of 7653 before rallying all the way to 7930 on Friday and closing at 7845. Reversing candles are aptly named. More often than not, they mark bottoms on weekly charts. Don’t take my word for it, check a few charts out yourself.
When prices break above them, they typically rally, and rally hard.

Yes, I have attempted to put together a bullish arguement, as this is how I’m interpreting the current price action. However, I’ll be just as happy to sell this thing should prices break down and the buyers that have been hanging around at support bug out. We have to watch this market like a hawk!

Over the last few years we have had a few setups just like this in the Yen, Swiss Franc, and British Pound that resulted in trades that… well, let’s just say they were monsters!

Ok, that takes care of my job, doing the price action/technical side of the analysis. Now to really get a handle on this, and I know you’re going to moan and groan about it, but in this case, where we are planning a longer term trade, you need to know a little bit about the fundamentals. When you get the technicals and fundamentals in sync with one and other, nothing can stop it.

Both the technicians and the fundamentalists will be doing the same thing at the same time – and that is the condition required for a monster move! All we need to do
now is watch the convergence of the 20 day moving average on support and see where the power lies – with the buyers, or the sellers.

TRADING RESISTANCE:   7862, 7894, 7955, 7997
TRADING SUPPORT:   7830, 7768, 7717

I’ll let you know when and how (futures and/or options and/or forex) I’m taking the plunge the night before I do it. My guess it will occur within the next 10 sessions. In the meantime, check the fundies!