FX TECHNICAL ANALYSIS
Like the Euro, any purposeful weakness that emerges on the Pound should be seen as the possible resumption of the long-term downtrend.
Canadian Dollar (ETF: FXC)
time for a new uptrend is now. As you can see on this chart of FXE, the trend was down in 2014 into the 2015 low. Since then, FXE has been grinding eastbound in a countertrend price pattern for a very long time. Since the turn of the current year, FXE has more purposefully moved back to the high for this recovery, just recently setting a new high. As impressive as this recovery has been, it’s fool’s gold. Like the U.S. Dollar, the Euro is in the final movements of a price move that is very clearly a countertrend affair. In fact, at Trend Lizard we’ve been waiting since 2015 for FXE to test the yellow area shown on the chart, because this is where the countertrend move is expected to end. Finally, FXE made it. That doesn’t mean a high will occur tomorrow, but it could occur at any time from here. It is time to be fully on guard for a high and reversal in trend back to down. Any notable weakness
20 FX TRADER MAGAZINE October - December 2017
that emerges on FXE should strongly be considered as the inevitable resumption of the long-term downtrend.
British Pound (ETF: FXB)
Other currencies tell a similar story. Take a look at the FXB chart, which is the most popular British Pound ETF. Like other global currencies, the Pound has been enjoying a recovery this year, finding itself at a new 2017 high right now. However, this is not the end of the downtrend that has been in play for over a decade. Recall that trends play out in five moves (or five waves in Elliott parlance). We know with certainty that the trend has been down, yet the trendy down leg off the 2014 high is not yet a five-wave move. To the point, the down leg off the 2014 high is not yet complete. Another move to a new long- term low is needed. The current recovery can end at any time.
Let’s look at one more for good measure. The Canadian Dollar was in a big-time downtrend since 2011. It established a low in early 2016 and has been on the mend ever since. Now, the recovery off the 2016 low is three moves (up, down, and then up). We know that countertrend moves play out in three “waves”. We can’t yet be positive that this advance on the Canadian Dollar is just a countertrend move; it’s not as clear as some of the other currencies we follow. However, we do know that if it’s a countertrend move, it’s going to end soon. There is significant resistance in the 83.00 area on FXC, which could be enough to end this otherwise strong recovery. Like the other global currencies highlighted above, I wouldn’t want to be caught owning FXC or any other Canadian Dollar-related instrument if notable weakness emerges any time soon.
Ryan Henry
co-founder and lead analyst TrendLizard
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