The USDCAD interests me the most right now.  With the pair failing to immediately extend losses below 10250, we must entertain the idea that the decline from the December high is an ending diagonal and that the drop below 10250 was an evil stop run.  The diagonal would potentially complete the entire decline from 13068.  This sets up an opportunity next week. 

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The British Pound is currently showing signs of failure at the confluence of especially important resistance, as the 1.6280-1.6400 region represents a combination of 50 and 100-day Simple moving averages, falling trendline resistance, and the 50.0% Fibonacci retracement of the November-December decline. A failure here opens up a big move to the downside, so keep an eye out for a weekly close below key resistance line for a potential trading opportunity.

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Risk appetite has maintained its steady but slow advance for yet another week. For the currency market, this translates into a favorable move for carry with the Australian dollar leading its Canadian and New Zealand counterparts higher. However, this isn’t a strong reflection of underlying sentiment. Instead, we are experiencing latent momentum from the influx of capital through the 2009 recovery. Greater levels of stability will likely be the norm going forward as the rebound in economic activity and market turnover settles; but the tame levels we have seen over the past two months (best personified by the Dow Jones Industrial Average) is a highly unusual and no doubt temporary. A break is coming; and this will force the market to take sides. Is there enough sidelined capital to encourage a steady advance from here even though 2009’s rally marked one of the biggest reversals in history; or will short-term speculators take profit? I expect the latter scenario will play out; but timing is the more important factor here.

How close are we to the inevitable retracement in risk appetite? That is the question that will define the market’s trend over the next week and beyond. There are different currency pairs that say different things. The medium-term trend is still behind the bulls. On the other hand, there are a few pairs with very early reversal potential. So, while AUDUSD is still carving a consistent ascending triangle formation, NZDUSD has tenatively broke its own rising trendline and stalled on the other side of the technical wall. I entered the market at 0.74 on a reduced size position and set a stop just above 0.7560. Now, this pair needs to take out range support at 0.7365 to truly develop a reversal. If there is a confirmed break, I will build my position and take a first target that will likely work with the breakout momentum at 0.73. NZDUSD is a pair that is closely related to underlying risk trends due to its greenback counterpart. Another position that I am still in pits to relative carry currencies against each other; but it is clear where the real yield lies. My AUDCAD short was built over two moves (one just below the 50-day SMA and descending trendline while the other was entered on a break of 0.9550). I will maintain this position with a stop above this month’s swing high (0.9630) and first target of 0.94.

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Positive RSI divergence hints that a bullish bounce may materialize, establishing a double bottom above 1.0233. That said, a clear entry signal remains elusive and I will remain on the sidelines for the time being. Near-term resistance is seen at 1.0415.

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The Canadian dollar has started to see support wane after testing the October low 1.0229. Oil and commodity prices are lower on the day which is starting to weigh on the com-dollar. I definitely see potential for a reversal here, but will wait for a move back above 1.0412-1/12 high before entertaining a long position, with a break above the 20-Day SMA at 1.0435 as final confirmation. The BoC rate decision next week is expected to see the central bank remain on hold, and if policy makers remain committed to their pledge to keep rates on hold until mid-2010, then we could see “loonie” weakness accelerate. However, a break below the October low leaves a clear path for a test of parity which can’t be discounted before a reversal takes root.

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After taking profit on the short CAD/JPY trade earlier this week, the pair bounced back during the last two-day of trading, but the lack of momentum to retrace the decline from 2010 high (90.65) could push the pair lower as market participants scale back their appetite for risk. However, as the pair continues to find short-term support around the 20-Day SMA at 88.04, I will wait for a clear directional bias before looking to sell the pair again.

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We took advantage of buying a very oversold cross rate last Friday, and will once again look to take advantage of a still overdone cross rate following the latest dip back towards the multi-month lows. Longer-term studies show the market very well supported in the 1.4600-1.4700 area and any pullback to retest the recent 1.4730 lows should result in yet another sharp upside reversal. We favor the current pullback potentially exceeding 1.4730 towards the figure before sharply reversing course to set up a short-term double bottom scenario on the daily chart. Neckline resistance would come in by 1.5085, with an eventual break above this level then opening additional upside into the 1.5400’s. STRATEGY: BUY @1.4715 FOR AN OPEN OBJECTIVE; STOP 1.4565. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE ON FRIDAY. 3X LEVERAGED.

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