Volume Signaling Weakness - Watch 1.27-1.2850

The Loonie has been slopping around sideways for the past couple of weeks. Back on July 22, we wrote about the possibility of a multi-hundred pip sell off. After a brief dip, prices drifted higher from July 29-Aug 4. The Aug 4 peak occurred at a level where a wave relationship suggests the possibility of a deeper sell off (see wave relationships below).

The inability of USDCAD to move higher while Oil slips lower has renewed my interest in this pair. The higher probability opportunity shows the potential for a dip to 1.27-1.2850. Since we are 200+ pips above those levels, we have a short opportunity.

Be mindful that we are likely in a wave iv which means there would be a wave v higher. Also, the picture is slightly mixed with Elliott wave, wave relationships, and OBV showing bearish signs. SSI is the outlier in the analysis as it suggests a bullish move is coming. That mix may also support the wave iv position.

Here is a summary of the main variables/indicators we watch:

Elliott Wave Count – we appear to be in circle wave iv which appears to be carving an expanded flat downward correction – this means a sell off, if it transpires, should prove temporary in nature

Wave Relationships – The Aug 4 high occurred at the 1.382 expansion of the July 24-July 29 drop. This is a common relationship in a ‘B’ wave of an expanded flat or running triangle. If we are in an expanded flat (or complex W-X-Y) targets exist in the 1.2700-1.2850 zone.

SSI – current reading is -2.3 and last week it was at -2.1 so little has changed. Long positions are 31% below levels from last week and short positions are 69% levels from last week. SSI suggests a bullish move is coming as the shorts build.

OBV – Volume on an intraday time frame (2hr and 4hr) are showing the down volume is occurring with greater frequency and depth than up volume. For example, the OBV on the 4hr chart is already below the Aug 12 level (yet price is still higher than Aug 12). Also, OBV is at the same level from July 29. This is indicating weakness because price is still 200 pips higher today than July 29 while volume is at July 29 levels.

I welcome your thoughts and comments.

Best of luck!