Canadian Dollar.. Major Buying Opportunity?

As you can see in the above chart, the Canadian Dollar has been selling off since June of 2006. You'll also notice that this currency has been in an uptrend for the past few years so buying a pullback isn't a bad idea.

Right now the Canadian Dollar has pulled back to a support level (Green horizontal line). The currency is also in the time window for a cyclical bottom. Approximately every 10 months this currency tends to make a significant low. Notice in the lower panel how the stochastics indicator is below the buy line. The last 3 times this oscillator moved below the buy line and turned up, the Canadian Dollar rallied rather sharply.

So we have 4 reasons to buy.. We have a support level, the major trend is up and has pulled back, the stochastics are in the buy zone and a cyclical low is due.. But wait, there's more!

In the next chart you will see a 3 year weekly chart of the Canadian Dollar courtesy of barchart.com
In the lower panel are 3 colored lines. For this discussion I am only interested in the red line. The red line represents the commercials. The commercials are the market participants who actually use this currency such as large banks. It is believed by myself and many other traders who follow this data that the commercials are the smart money. The scale to the right reflects the net position. Above zero means the commercials are net long, below zero means they are net short. As you can see the red line is the highest it has been in a few years which means the commercials are holding their largest net long position. Notice in May of 2004 and May of 2005 when the red line exceeded +2000, the Canadian dollar rallied. Now we have the commercials with a net long postiion of over 8000. I consider this a very bullish reading especially since the major trend is up.

So how do we trade this. Well, you can use whatever method you like. You can enter on a moving average crossover to the upside, maybe use a 4 week breakout method, you can buy right here at support and risk 1 weekly ATR, maybe draw a trend line and wait for it to be broken..etc. The point of this post is to alert you to the possibility of a major buying opportunity in the Canadian Dollar...Trade it as you wish...