Sentiment Speaks: USD/CAD Lower Levels Likely Ahead

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Includes: FXC, UDN, USDU, UUP
by: Michael Golembesky

Summary

Price action over the prior month.

Anecdotal and other sentiment indications.

Price pattern sentiment indications and upcoming expectations.

Price Action Over Prior Month

The USD/CAD has seen as stead loss in value since the December high at the 1.3597 level and into the January low at the 1.2968 level. This move accounted for close to a 5% move in the pair over that timeframe. Of course this move pales in comparison to the larger move that had occurred in the first quarter of 2016 when the USD/CAD lost over 15% of it's value. That first move off of the January of 2016 high was very likely only the first initiation move of a much larger pattern that the pair is undergoing. Ultimately this larger pattern should take the USD/CAD back down under the May of 2016 lows and eventually down towards the 1.1500 level

Anecdotal and Other Sentiment Indications

On Friday we saw the Canadian unemployment rate come in pretty much in line with the analysts' expectations. The pair did close lower on the session following this news and although it rebounded slightly as of this writing the pair is still trading lower.

On Tuesday of this week Janet Yellen will appear before the before the Senate Banking Committee to testify. Although the content of this testimony is not highly relevant the this does have the potential to act as at timing catalyst event for the USD/CAD so it is worth mentioning.

Price Pattern Sentiment Indications and Upcoming Expectations

As is visible on the Daily chart below we can see that the USD/CAD pair made a major top at the 1.4688 high in January of 2016. This move culminated with a bottom at the 1.2460 low in May of 2016. As mentioned above this is what I consider the initiation move after a much larger degree topping pattern was put into place with the January 2016 top. The structure of this move down off of the January 2016 top was a fairly clear impulsive wave structure which gives us a strong signal that the sentiment has shifted from a bullish outlook on the USD/CAD to a more bearish outlook.

This bearish outlook was then confirmed by what was subsequently count as a corrective move up off of that May 2016 low all the way into the December of 2016 high. As is clearly observable this pattern is very overlapping in nature which is telling us that the larger degree sentiment on the USD/CAD is still very much bearish.

The next question that we are looking to answer on this pair is if the high that was struck on December 28th of 2015 was indeed the final top of the corrective move higher after the initial impulsive wave down.

To answer this question we first would look to the move down off of that December high and into the January low. By analyzing the sub wave structure of this move we can certainly make the case that this was also an impulsive wave structure thus giving us back to back impulsive wave structures going back to the January of 2016 high. These back to back impulsive wave structures are typically one of the more reliable patterns that we can look for to help confirm that our pattern is indeed moving as expected.

So from here as long as the USD/CAD can ideally hold under the 1.3476 level the impulsive pattern to the downside is looking quite promising and is suggestive that we should indeed see this pair move to lower levels over the course of the next several years.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Part of the sentiment Speaks series