The most powerful method of analyzing the market is to do away with the “normal trader approach”, the cause-effect analogy and focus on what the market is doing. Sometimes, it does go according to a traders forecast but unfortunately most of the time, they get whopped.
Looking at the Euro, many expected its respective pairs to rally. They actually turned lower. This to me means the market is exhausted and the climb up is almost over. Merkel won her fourth term but then she didn’t win the majority vote and therefore, just like New Zealand, a coalition government is on the cards. Merkel is the hope of Europe and with her Paris-Berlin axis pillar of European strength due to be challenged, it looks like the Euro will stumble. Furthermore, news has it that the ECB will after all implement the much anticipated-asset purchase reduction-tapering but at a very gradual pace. In this regard, investors expect the USD will take charge unless otherwise Trump mess things once more.
However, one thing is clear and should be a warning shot for USD bears. USDX turned higher and the 7 month resistance trend line was broken last week after a clear bullish divergence had formed 2 months prior. There is also a buy stochastics buy signal and a series of bullish soldiers moving away from the lower BB and looking to test the immediate 200 period MA which is a resistance level.
The USDCAD is also charting up with a bullish divergence and series of higher highs in relation to the lower BB. There is a buy signal in the weekly chart and therefore, we should look to enter long in the lower time frames-preferably in the 1hr chart if you want to tune things up. My first targets will be last year lows of 1.25 and then 1.28 before I a possible correction.
I will therefore trade as follows:
Stop Loss: Below 1.22
Take Profit: 1.25 and 1.28
Have a good trading day and look forward for NY session US fundamentals.