In the mid 2000’s I was trading currency futures, focussing on the Canadian Dollar. I had not yet begun to trade Forex. Like any good Gann student, I maintained a hand-drawn daily chart of the instrument I was trading. The rationale for doing this is simple: when you draw a chart by hand and update it every day, you begin to notice things that you don’t see on a computer screen.
This was when I began to notice a 40 day recurring cycle. It is not an obvious cycle, and like all fixed-length recurring phenomena, it comes and goes. I began to look for this cycle again in the USD/CAD currency pair this week. What I found was interesting. You can see on the accompanying chart, that there are three occurrences of minor reversals 40 calendar days after preceding reversals, plus or minus a day. Then we have what appears to be a double top in formation. When we add 40 calendar days to the first top on 30 January, we get 11 March. After that date the market retraced from 1.2796 down to 1.2618, then made marginally new highs before coming back below the 1.2794 high of 30 January.
But what makes this really interesting is the significance of the price level we are at right now. The current rally began in July 2014 at 1.0619. When we use the square of nine to calculate 180 degrees and add it to this price we come to 1.2782, just 12 pips off the high of 30 January. 180 degrees is a significant pressure point.
There are three factors at work here:
- The USD rally is running out of steam and our best analysts are predicting an imminent reversal.
- The recent top is within 12 pips of a major level of resistance.
- There appears to be a double top forming at a 40 day interval.
Three is enough for us. USD/CAD is struggling to make new highs. It may be time to go short. If it breaks below 1.2352 our downside target would be 1.1909.
Update: It is 18 March and we have been short twice, break-even stops hit both times. The market is skittish about the Fed announcement, so we are going to wait and see. The market has clearly indicated that the time for a turn has come. The Fed announcement could cause the rally to last a little longer, but we will continue to look for short signals unless an up trend is confirmed on the daily chart.