USD to CAD Weekly Candle Chart - 9th February 2009

USD to CAD Weekly Candle Chart - 9th February 2009

I have expanded the scale on this week’s usd to cad chart to highlight the strong pennant pattern which is now forming, as a result of lower lows and lower highs on each candle of the last few weeks. This is now a strong signal that we can expect a breakout soon, with the point of the pennant forming around the 1.2300 to 1.2400. Many novice traders then ask the question which way will prices move ( not an unreasonable question !) – the truthful answer is we cannot be sure, but we have two ways to use this piece of analysis. Firstly, whichever way prices break, will provide us with a much better idea of price direction for the the next few weeks, and secondly if we are trading in currency options, then we have the opportunity to place a straddle trade which in essence is one where we have little idea of the direction, but where we believe volatility will provide a big move one way or the other. So the pennant can be an extremely important tool in our technical analysis toolkit. Now clearly I cannot say exactly when this will happen, but from the analysis I would suggest it is imminent, and could be triggered by some of the fundamental news out this week.

The main fundamental news out in Canada this week starts with the Housing Starts today, followed on Tuesday by a statement from Mark Carney, the Governor of the Bank of Canada, to the Standing Committee on Finance, in Ottawa.Volatility is sometimes experienced during his speeches as traders attempt to decipher interest rate clues. As head of the central Bank of Canada, which controls short term interest rates, he has more influence over the nation’s currency value than any other person. Traders scrutinize his public engagements as they are often used to drop subtle clues regarding future monetary policy. If the statement is more hawkish than expected then this is generally good for the currency, in this case the Canadian dollar. Finally on Wednesday the last significant set of data is the Trade Balance with a forecast of 0.8B against a previous of 1.3B last time.

In the US the main numbers start on Wednesday, with the Trade Balance ( as or Canada) so two important pieces of data within a few hours of each other, and following the statement by FED chairman Bernanke the previous evening. The forecast for this time is -37.0B against an actual of -40.4B last time. Thursday sees Core Retail Sales and Retail Sales numbers along with Unemployment data, so we should start to see some significant movement in the usd to cad pair.The Core Retail Sales figures exclude cars, which generally account for around 20% of sales, and therefore the figure tends to provide a more accurate view of the current market and spending trends. The forecast is for -0.5% against a previous of -3.1%, and if the actual is better than forecast then this is generally good for the home currency, the US dollar. Finally on Friday we have the Preliminary Consumer Sentiment and Inflation Expectation numbers.

My suggestion for this week is to stay out of the pair, until we have a confirmed direction, and only to trade if you are opening a position using options and a straddle strategy.

The short term outlook is sideways, the medium and long term is bearish.