Key Levels


In our analysis Wednesday we talked about the potential for huge price action if the CAD cleanly breaks above the 200 day MA and we certainly saw that yesterday. This move is significant for 3 reasons. First, the CAD has traded below the 200 MA for over 1 year. Secondly, the 200 MA was only challenged once during that time and that was the day of major global market sell off. That moved confirmed that the 200 MA was acting as major support. Lastly, anytime price crosses one of the major moving averages it often signals that change maybe imminent.


As the case has so often been, the JPY is the beneficiary of risk aversion. The JPY will often trade stronger than the Greenback because traders are covering short positions, which means they are in the market buying JPY to cover. This has been one of the harder to pairs to trade as you need to analyze this pair daily in order to keep up with the volatility. In late March we saw the JPY break above the 200 day MA, which was followed by a cross of the 50 day MA as well as the 100 MA. Unfortunately, just as the 100 MA broke above the 200 MA, the global sell off was triggered. When technicals converge on a specific level it adds importance to that level, and usually signal a major move in the market if that level is breached. Using a Fibonacci Retrace from the low of 2009 to the High of 2010, it generates a 23.6% Retrace level that coincides with 50 day moving average at exactly the point where price action crossed. That breach near 92.60 has not been retraced with price now looking to close at the 50% Fibonacci Retrace level near 89.90, a near 300 pip drop.


This is a great chart to look at. In our analysis last week we spoke about the distance that price had separated itself from the 50 day MA. This simple analysis is significant because if you consider what an average is you would expect price and the average to equal each other at some point, otherwise, of what value is an average. We suspected there would be a retrace to make up the difference and in light of market conditions this is a valid move that will find support before falling too much further. We use a Fibonacci Retrace from the low prior to Gold’s initial advance, up to the recent high. Gold now looks poised to close at the 38.2% Retrace level. The 50 day MA will continue to rise but there is nothing to suggest Gold should close below the 50 MA. Therefore, traders who buy on the dips are redying themselves to jump back in somewhere between the 50% and 38.2% Retrace out ahead of the 50 day MA (blue arrow). We should then see Gold resume its upward trend.

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