How to Improve Your Market Direction Forecasting Skills (Part 4)

03/12/2009 12:01 am EST

Focus: STRATEGIES

Timothy Morge

President, MarketGeometry.com

Let's look at another market that may give us some further clues into this market:

The Canadian dollar's movement is closely tied to the price of energy. Canada produces three times as much energy as it consumes! When the price of oil plunged from $147 dollars per barrel, the Canadian dollar sold off hard against all the major currencies.

chart

Let's focus in on this weekly crude oil futures chart. Let's face it—the price of oil fell off a cliff! Although it's been consolidating recently, there are no signs of strength yet.

Or are there?

I see a series of higher weekly closes. That's a small victory for oil prices, but to really get things going to the upside, prices will have to break and close above the prior two swing highs. Crude will have to have several weekly closes above the $52 per barrel price before I can start thinking about being bullish on crude oil futures.

Do you see it happening? Or is crude oil more likely to break the $30 a barrel level and continue lower from here? The fate of the Canadian dollar probably rests with the future price of crude oil.

Like the Canadian dollar, the Australian dollar was flying high in early 2008! But the sell off of commodities—and the metals in particular—brought the Aussie back down to earth.

chart

Looking at this chart, you can see price is in an up-sloping trading range. Price has already tested the down side of the Energy Coil, or trading range, three times. For those of you counting, that's three drives to the bottom.

Higher lows within a trading range. Do you think the Australian dollar is going to break out of this range to the down side or the up side? What clues do you see?

Price would have to break above the prior two major swing highs and close several days above the 7300 area before I became bullish on the Aussie dollar. Could it happen?

More tomorrow in Part 5.

Timothy Morge

timmorge@gmail.com
www.medianline.com
www.marketgeometry.com

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