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Postby bforex » Wed Jul 07, 2010 1:50 pm

The CAD slide is losing temporary momentum. Utilizing the Relative Strength Index (RSI) on the daily chart we can see that the RSI is sloped downwards and moving below the 70 range (see blue arrow). Below a 70 reading and with an RSI sloped down suggests momentum is beginning to slow. However, the 50 MA is set to cross above the 200 MA for the first time since May of 2009. This implies that the CAD may weaken further. A close above near term Resistance at 1.07 may confirm the move. However, we also must consider in this equation the price of Oil. The price of Oil is closely correlated to the price action on the CAD. As Oil moves higher so does the CAD and vice versa. As the main retrace has occurred it is likely that we will see some consolidation before the CAD breaks higher or lower.

After touching a high of $87 back in early May, Oil dropped precipitously to a recent low of $67 before retracing more than 61.8% of the loss as noted by the Fibonacci Retrace level. Its inability to take out that level implied underlying weakness which consequently pushed Oil back to its current handle at the Fibonacci 23.6% level. If a whole candle forms under under the 23.6% level it may push Oil prices even lower. A confirmation of this move would occur if the 100 MA trades below the 200 MA. If you compare Oil's price action to that of commodity currencies such as the CAD above or the AUD below you will see very similar price patterns take shape. The reason for the similarities is because of the highly positive correlation between Oil, a commodity, and the CAD and AUD, the commodity currencies.

To further highlight the strength of correlative trading we added a Fibonacci Retrace from the AUD's recent high at 93.50 to its recent low at .8050. We see a very similar price pattern compared to Oil, in that the AUD was able to retrace 61.8% of it move until it ran into Resistance against the 50 day MA. It has since fallen back to the 23.6% Fibonacci level (look at the Oil chart above for comparison). A clean break below the 23.6% level at .8380 will likely signal further weakness ahead for the AUD. It is quite likely, do to the highly correlative nature of Oil and the AUD that if Oil breaks below the 23.6% Fibonacci level so will the AUD.

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Postby blubbb » Wed Jul 07, 2010 2:18 pm

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