[LFX]

Following it sharp July decline, USDCAD has been effectively consolidating between 1.06-1.11. This sideways range is considered a pause in the long-term March decline. The current March decline is unwinding the historic Nov’07-March’09 rise (0.9060-1.3065) and has recently stabilized after testing support from the 61.8% Fibonacci retracement point (1.0590) of that rise. The 61.8% retracement point offers strong support and traders expect this level to hold a bit longer. However, the medium-term bias is bearish suggesting the 61.8% retracement point will eventually crack, opening the door toward the deeper 76.4% retracement point at 1.0005. USDCAD has a historical tendency for making deep, 75-80% retracements -- another factor suggesting risk for a decline toward parity later this year.

The sluggish summer trading range (July-August; 1.0635-1.1125) has tipped its hand to the downside with last week’s marginal break to 1.0590. This implies a bearish range breakout is already underway with downside risk during the next several weeks to the 1.0145 range breakout Examining the long-term chart shows USDCAD is currently trading some distance above its next notable chart support from the 1.0300 Sep’08 low. A weekly close below 1.0590 (61.8% retracement point) would leave USDCAD vulnerable to 1.0300. Elliott wave analysis suggests scope for a deeper decline toward two target zones: 1.0530/05 and 1.0340-1.0200. As long as USDCAD holds below 1.0930 and 1.1105 resistance, the downward bias toward these target zones will remain intact. Weekly momentum is bearish suggesting it is poised to propel USDCAD lower this autumn. Timing studies imply USDCAD has scope to extend its March decline until year-end or early January 2010. That should provide ample opportunity for a decline reaching the 1.0340-1.0200-1.0145 target levels and perhaps “undershooting” toward 1.0005/parity. The presence of entrenched, long-term uptrends in AUD, NZD, ZAR and CAD versus the US dollar creates “across-the-board” Commodity Currencies strength. This condition increases the probability for
further appreciation by these currencies in the weeks ahead.