USD/CAD:
It is January 20th, 2010 and the Dollar is back with a vengeance today. We have been keeping an eye on the Canadian dollar as it has been playing the technicals almost perfectly. We drew a Fibonacci Projection from the high, 1.3064 reached in early March 2009 to the low, 1.0785 seen in early June. We often use the Projection method to test whether the high and low that we have used is still relevant. Our barometer for relevance is met if the Projection lines serve as future Support and/or Resistance for later price action.
In this case the Fibonacci Projection works out perfectly. The 123.6% level at 1.0247 also represents near term CAD resistance, struck back in mid October. The Canadian dollar retraced its gains made in October following the BoC's admonition of a strong CAD. As history tends to repeat itself, the BoC held rates steady two days ago and again expressed its dismay at a strong CAD.
The CAD bounced off the same level of resistance which is also the Fibonacci 123.6% level. We have stated before, that key handles when supported by varying technical analysis, form very strong points of entry and exit. Today's pop is often fueled by stops getting blown out, but none the less it looks as if the market will support this move. Additionally, we are going to close just below the 50 day MA. This is another simple but effective way to capture PNL. If we break the 50 day MA you can expect price action to give the USD a further lift.
The next levels of CAD support would be the 100 day MA at 1.0577. If that is taken out then the next level of support is 1.0785. This is a significant level as the CAD has bounced around this handle several times over the last 8 months without breaking through. If 1.0785 is taken out, we then target the 200 day MA, currently at 1.0950. Resistance in this case holds firm at 1.0247.