Bulls Beware - Elevated Chance of 200 Pip Sell Off

FX:USDCAD   U.S. Dollar/Canadian Dollar
1983 17 33
2 weeks ago we published an analysis for positioning long the USDCAD             . We noted “if we successfully break above 1.28…then I’m eyeing 1.30-1.31”.

We can now dial in with more precision where this zone is. There is an elevated probability we’ll see a reaction lower taking place in the 1.3050-1.3150 price range. This doesn’t mean prices WILL trade lower. What it means is the trend is up and those positioned to the long side need to manage their risk. If you’re not long, an ensuing dip near 1.27-1.28 will offer an opportunity to position long.

Retail traders have been net short at FXCM             on the USDCAD             since June 18. Since that time, price has rocketed higher about 800 pips. Sentiment continues to be heavily shifted towards shorts as the ratio is -2.7 and open interest in short positions has grown 9.5% since last week. So it is the technical wave relationships that are flashing the caution sign now. If prices move above 1.3150, the door is open towards 1.34.

However, be mindful that the retail traders might actually get this one right and prices may sell off a bit. Look for the red support line to break and for SSI             to shift more positive to be additional indications of a larger sell off coming.
im agree , monitoring it past few days to start falling
Very good point. It's almost impossible (unless all we know about Technical Analysis is false) to easily break the 2009 significant resistance at the current moment of highly overbought market. Also wave count tells us that all 5th waves, major and minor are completed. I wouldn't get long. The risk is simply too high. Also for getting into short, I would recommend extreme caution and timing, as drops usually develop much faster and are much more volatile, especially at the top of the market. As you have indicated, 1.27 could be a level where bulls may again be re-considered. One more thing. Could you give some source (i.e. website or paid resorces) where you get "net shorts, open interest etc. data for forex and else"? If possible. Regards.
Well said TRDVMA. SSI is like a road sign on the highway. Gives your warnings and indications to consider.

The data I am pulling is from FXCM and it is called SSI (Speculative Sentiment Index). There are a couple of ways to access it:

1) Through DailyFX Plus - twice per day - http://www.dailyfx.com/forex_trading_signals?CMP=SFS-70160000000Nc3HAAS (use your live FXCM account credentials to login or sign up for a temporary trial)

2) You can obtain real time SSI with an FXCM account balance greater than $25,000. You can receive this figure on your charts or through an exclusive website.

Here is an example of what you can get: http://www.dailyfx.com/forex/technical/ssi/nzd-usd/2015/07/23/ssi_nzd-usd.html?CMP=SFS-70160000000Nc3HAAS
The 1.30650-1.30800 is really the key level i have stated since entering this trade at 121.500. This is multi year highs, a daily close above and 134-135 is the level to watch for a pullback to go long. 134 is also the 1.618 from the 3-18 high to 5-14 low, these levels usually hold the first attempt. Add in the direct correlation to oil which closed today below $50 and the ssi i expect to see a close above 1.30650, if this happens 134 will come very fast! I am holding long from 121.50, 1.233, 1,248, 1.266. 1.268,1.282, and 1.285. This has been one great trade and looking for more!!!
Don't be fooled by the "over bought" yea have two currencies on different ends of the spectrum in monetary policy. Also one is a commodity currency which are very weak right now. Look at the gbp/nzd it was over bought on 5-8-15. All it has done since is stay over bought and moved up higher 2800 pips. While overbought and over sold are important i wouldn't put all my stock in it...
Great job on nailing this trade early on Dan! I agree with your comment on 'over bought'. I didn't mention it in my piece above so I think you were writing that comment in a generic sense of which you are absolutely correct!

SSI is still looking strong for bulls. It is the technical wave relationships that are the obstacle right now. Something will need to give.

Again, nice one!
Hi JWagner, very detailed analysis. All the Best :)
Thank you moneymaking...take care. Jeremy
I think there is still a bit more room to the upside.
Correction for my previous idea on USDCAD
. Good luck
1.30632 line of 2009 significant resistance to watch. My opinion is that it would be quite difficult to break this major resistance with high overbought credentials of the USDCAD pair at this moment. Would surprise me a lot, if there is a strong breakout in the up direction. Bulls beware!
To clarify for those traders who are newer to FX...TRDVMA, Dan, Hamza, Moneymaking and others like I are using the indicators to provide clues. We never know for sure what will happen in advance of the move so to stay solvent, you must risk small percentages on each individual trade.

+1 Reply
moneymaking JWagnerFXTrader
Well said JWagner, all of us are just giving our own individual perspective of what is likely to happen to this pair, based on the current price action that has been created by the market. Next week's Federal funds rate can definitely be the catalyst that could set this pair in either direction for quite some time :)
Had our highest daily close today at 1.30360! Moving my stops to 1.29000! So worst case scenario we get a pull back i get closed out for a profit of 2330 pips, not to bad! I totally welcome a pullback to 1.2700 or a close above 1.30650, either way i will be laying the wood again on the way to 1.3400 then 1.4000!!!
Let me give you one piece of unsolicited advice...ok?

Once your trade closes out, I would suggest trading in the smallest trade sizes possible for a few days so your mind can reset to taking on losses.

A chemical is released in our brain when we experience pleasure...winning on a huge trade will certainly release that chemical. I can tell you already have it with the excitement of your post. I am thrilled for you and glad you've had a super run on this trade. You managed this trade to a 'T'!

Reality will check in once it closes out so small trade sizes and literally unplugging for a couple days will help you reset.

It sounds weird, right? After a winning streak to take a break. Perhaps use that break to enjoy your profits from this trade.

+2 Reply
norberg_dan JWagnerFXTrader
Thanks Mr. Wagner thats great advice from you as always! I have some pretty big shorts on aud/jpy from 95.3 and 92.5. Also on gbp/jpy at 194 and gbp/cad long at 1.936. Think i will be taking that advice and scaling it back some to enjoy a really great run i have had of late!
norberg_dan JWagnerFXTrader
Closed out all my longs at 1.30814, wasn't comfortable with the divergence i was seeing. I also wanted to protect my profit, made just over 3500 pips! I would rather miss a possible move to 1.34 and keep my profit rather than give it back.

I can only wish to make this much on every trade! Better to be safe than sorry...

Hopefully it fails here and we get a pullback for re enter. Wave 4 comes in around 1.27 to 1.28 which is also the .382% fib at 1.27304 from the latest move so that makes sense and looks good.
In 1 word, excellent
United States
United Kingdom
Home Stock Screener Forex Signal Finder Economic Calendar How It Works Chart Features House Rules Moderators For the WEB Widgets Stock Charting Library Priority Support Feature Request Blog & News FAQ Help & Wiki Twitter
Private Messages Chat Ideas Published Followers Following Priority Support Public Profile Profile Settings Account and Billing Sign Out