Chart Pattern Suggests USD CAD to Weaken for 1 – 2 Days

The Canadian Dollar started sharply lower with the market hitting a three week low following the Bank of Canada’s announcement of an interest rate cut to 25 basis points. Although some traders claim this was a surprise, the real surprise in my opinion was the BoC’s statement calling for interest rates to stay at this level until June 2010.

In its official statement the BoC predicts a much deeper recession than previously forecast. It expects to see the economy contract by 3% this year. This is versus a previous forecast of a 1.2% contraction earlier in the year.

Canadian Finance Minister Flaherty said that the downward revisions do not mean more economic stimulus is likely. Canada has already committed $32 billion toward stimulus for the next two years. Flaherty also said that 2009 will be a difficult year and some of the problems may spillover into 2010.

Trading could be tight the next couple of days and there may even be a short-covering rally as traders lighten up positions in the market ahead of the announcement of the BoC’s new quantitative easing plan on April 23.

Tuesday’s action indicated the possibility of the start of the short-covering rally following the reversal to the upside after U.S. equity and crude oil markets turned positive.

The Canadian Dollar started sharply lower with the market hitting a three week low following the Bank of Canada’s announcement of an interest rate cut to 25 basis points. Although some traders claim this was a surprise, the real surprise in my opinion was the BoC’s statement calling for interest rates to stay at this level until June 2010.

In its official statement the BoC predicts a much deeper recession than previously forecast. It expects to see the economy contract by 3% this year. This is versus a previous forecast of a 1.2% contraction earlier in the year.

Canadian Finance Minister Flaherty said that the downward revisions do not mean more economic stimulus is likely. Canada has already committed $32 billion toward stimulus for the next two years. Flaherty also said that 2009 will be a difficult year and some of the problems may spillover into 2010.

Trading could be tight the next couple of days and there may even be a short-covering rally as traders lighten up positions in the market ahead of the announcement of the BoC’s new quantitative easing plan on April 23.

Tuesday’s action indicated the possibility of the start of the short-covering rally following the reversal to the upside after U.S. equity and crude oil markets turned positive.

The price action of the USD CAD indicates a possible short-term reversal to the downside, but time is not supporting the pattern. This often indicates the start of a 1 – 2 day break.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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