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Inverse Head & Shoulders on USD/CAD


As USD/CAD trades near parity, we are seeing an inverse head and shoulders pattern forming, indicating a possible reversal of the down-trend that began in March of 2009 that saw the Federal reserve print large amounts of dollars, many of which went into buying commodities and driving up commodity currencies such as CAD. At this point, provided that there is no QE3, it would appear that the global economy is heading down the crapper. This should indicate USD strength and weakness in commodities, which support our case. A long entry should be a good bet around 1.0150, depending on if/when the pair breaks out of the reverse head and shoulders pattern. The wildcard is, of course, further quantitative easing by the Federal Reserve, which could throw a wrench in our plans. As long as the markets are not expecting any such action by the Federal Reserve, we remain optimistic about this setup.

We will upate this article as time goes, but I am hoping for a run up to at least 1.0650, and likely much higher in the coming months.

USDCAD chart for September 11, 2011

 

UPDATE 04-10-2011: With the inverse head and shoulders pattern completing nearly perfectly, we are out of the market at 1.0600 and awaiting a pull-back before entering further long positions in the 1.0350 area. This analysis will be invalidated if the Federal Reserve announces further easing measures.

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