S&P 500 Powers to Record High, Canadian Dollar is Back on Its Feet

Posted Tuesday, January 24, 2017 by
Eric Furstenberg • 3 min read

Hello, Traders! I cannot believe that the American S&P 500 stock index has once again risen to a new all-time high today. It has been trading sideways for quite a couple of days now, but today’s strong push higher overcame the previous record high which was set on 6 January this year.

 

S&P 500 – No Shortage of Action Here

S&P 500 Daily Chart

What a magnificent bull run indeed! It also looks like we’re going to see a pretty strong close on this index today, which is important in terms of follow through over the next few days.

What would be a good way to trade this index in the days and weeks to come? Nobody knows for sure, but if we look at how the price has reacted to the 20-EMA on this chart alone, it could be a good plan to buy retracements to this dynamic support level. I’ve marked the places where this index traded down to the 20-EMA in the last couple of days. Look at the following chart:

S&P 500 Daily Chart

Perhaps the 20-EMA will continue to support this index in the days to come, and we might get some great buying opportunities from off this dynamic support level.

Waiting for retracements to a certain support level, like in this case the 20-EMA, requires more patience than you might have thought. It always looks easy in hindsight, but you can easily wait a few weeks to get a retracement to this moving average. Here many traders will use other strategies such as entries on lower timeframes, or breakout entries, for example.

 

USD/CAD – The Canadian Dollar is Fighting Back

The USD/CAD bounced very aggressively last week, as comments from the BoC (Bank of Canada) governor Stephen Poloz weakened the Canadian Dollar substantially. He mentioned that rate cuts remain on the table, which is an outright dovish statement.

USD/CAD Daily Chart

As you can see in the chart above, there was a very aggressive bounce in this exchange rate last week when Stephen Poloz spoke. This Canadian Dollar Weakness didn’t last very long, however. Today the Canadian Dollar strengthened to the extent that the USD/CAD traded all the way down to its 200-day moving average. Of course, this is a much observed technical indicator which often acts as support or resistance on many financial instruments. On the chart above, you can see that as soon as the pair reached this moving average, it bounced a bit. I’m not expecting this level to hold as support, but it was just interesting to once again see the important role that the 200-day moving average plays in the financial world.

Something else to keep in mind is that we have a double top formation on the USD/CAD. Look at the following chart:

USD/CAD Daily Chart

If we consider the aggressive selloffs that started at these two tops, it looks like the path of least resistance could actually be to the downside – even past the 200-day moving average. I would personally not be surprised if we saw a breach of, and a close below this moving average pretty soon. However, we shouldn’t forget about the very important US Nonfarm Payrolls report next Friday which could send the Dollar in either direction. If we get some really good labor market numbers out of the U.S. it could curb the Canadian Dollar’s advance. Don’t forget that the Canadian labor market numbers are released at the same time as the US NFPs so keep an eye on both of these numbers.

Tomorrow we have US Crude Oil inventories at 15:30 GMT which could move the oil price considerably. The Canadian Dollar and the oil price is closely correlated, so this is also an event worth watching if you’re trading this currency.

Good luck with your trading!

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About the author

Eric Furstenberg is our Lead Educator
Eric Furstenberg is a successful entrepreneur and fund manager with years of trading experience in the Forex, commodity, and stock index markets. He is a seasoned trader who employs advanced trading methods to complement his portfolio and also manages a private investment fund.
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