A USDCAD Analysis

BarroMetricsViews: A USDCAD Analysis

Sorin raised a question (see his question in USD Topping?) whose answer may be of benefit to all.

My answer:

Here’s how my mind works. When I look at your chart (Figure 1), the first question that pops up is: what timeframe are you trading? 

If the 13w, I’d look at the 12-m to place the price action into context.

But, let’s say that the chart is all the info I have.

Then, I’d still like to set the context; so, the next question: B has taken out the highs of the prior downtrend. So, what is the current structure?

I’d label:

  1. A as a selling climax,
  2. B as the automatic reaction and
  3.  C as a test. 

This analysis helps me identify the boundaries of congestion, (AB) which in turn helps me identify:

  • the Primary Buy and Primary Sell,
  • the maximum extensions,
  • the likely top and bottom of value and
  • the minimum targets 78.6% and 21.4% retracement zones. </p>

Let’s now look at the smaller picture: I’d see the price action within the blue rectangle as showing the last shot at selling, and it fails. 

So:

  • At (1 in Figure 1), we have a breakout and retest in the 18-d or 5d. The breakout is clue we are about to see a move to the PSZ; 
  • at (2) we have a 13-w breakout and retest, a confirmation we are probably seeing a move to the PSZ.

Your chart does not show the possible value area. My black lines represent the two possible levels. Acceptance above the upper line, will suggest a minimum move to at least the 78.6% of AB and probably the PSZ.

So, to answer your question:

  1. The current 13-w trend is probably SW (with the swing up at C). I would therefore be looking for a turn down at ‘D’ (still to be formed). 
  2. We are currently seeing an upmove to form ‘D’. 

The tools not in Nature of Trend (NOT) that are critical to the analysis:

  • The development formula that provides clue on the duration of the SW move. 

  1. If the formula indicates that the SW move is ‘long in the tooth’, then I’d be less confident of a turn down at a potential ‘D’ – raising the prospect of an upside breakout. 
  2. If the formula suggests development is incomplete, then I’d be more confident that we’ll form ‘D’ and see a turn down from that level i.e. we’ll see a move to the PBZ.
  • Geometric Fann Angles: The current 13-w swing is in a R2 or R3 move. The GFA will provide the tools to warn if the directional move is losing its momentum, maintaining it or accelerating. 

The info above helps in determining if we’ll see confirmation of the SW structure with a turn down at D; or we will see an upside breakout.

  • if we do see breakout then we need to determine whether the breakout will successful or not  – with a breakout, we are now in a different stage of the Wyckoff model.

Hope this helps.

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FIGURE 1