I am actually quite bullish on the USD/CAD in the longer-term perspective.

The Elliott Wave analysis paints a pretty bullish picture in this pair.

The rally off of the November 2007 lows counts best as a three-wave rise (first chart), and with that knowledge the following counts below are the possibilities. As
we can see, all of the counts shown here (second chart), with the exception of the complex decline, are bullish in the near-term.

While it is difficult to tell if a bottom is already in place or not, I think that any five-wave rallies on a shorter time-frame chart will present great, high-probability
trading setups.
I definitely agree that the odds favor USD/CAD going higher in the long-term, however I haven't seen any evidence yet that a bottom is in place. Almost all of the
possible Elliott Wave counts I showed in my last post were bullish, but several of them could also see price continue a bit lower before the bottom is really in. I'm
waiting until I see a clear five-wave rally before I start taking on long positions in this pair.

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I think the more plausible explanation for the rally off the March 2009 lows is that it was simply a shift in the mass social mood of the market participants at the
time. This shift in social mood is part of the normal, natural ebb and flow of the herding behavior that is most likely the true driving force of the financial markets.

I find it extremely interesting that during the time period between 2008 and 2009, news of bank failures took center stage in almost every major news agency.
Now here we are in the year 2010 and hardly a word is spoken from those same major news agencies when seven more banks are added to the massive list of
bank failures. So the begging question on my mind is what is different now from what was going on in 2008-2009? Why did bank failures get all hyped up a few
years ago and now they hardly even get mentioned? If it was the "news" that was really and truely important to the markets then a bank failure would be a bank
failure and the reaction of the market participants should be the same. You could even argue that the recent additions to the bank failure list are maybe more
important than the earlier failures because they indicate that we still have a problem in our banking system, despite all of this "positive economic data/news."

To answer those questions all we have to do is look at this chart of the Dow J ones Average and compare the 2008 - 2009 time period to the 2010 time period,
and it all becomes clear why the bank failures in the early years received more attention than the failures in the latter years. We can clearly see that in 2008 -
2009 the market was in a downtrend, which could also be described as a period of "negative social mood." We also see that in 2010 the market was clearly in an
uptrend, a period of "positive social mood" if you will. I think the best explanation for the ebb and flow of the financial markets and the reaction to various news
stories lies in these social mood trends. In a "negative" mood environment, the outlook on the future is bleak and so people decide not to own risky investments
and also give more emphasis to the negative news stories because that negativity plays towards their fears of the future. Likewise, in "positive" social mood
settings, people have an upbeat attitude towards the future so they decide that taking some investment risk is a good idea because they can make some money
for their futures, and those same negative news stories are overlooked or downplayed to seem less important because the future looks so bright.

I do not believe that news or economics drives the financial markets. I believe that social mood trends and the herding behavior drive all social action, from the
financial markets to the types of news stories that get the most attention to the various economic trends. When looking at the rally off the March 2009 lows in the
Dow J ones Industrial Average it was really not caused by news or the assumed health of the banking sector; the more plausible explanation was that the rally was
nothing more than a reflection of the trend change in mass social mood.

Originally Posted by Big Mike
Zen Koan will give you the best answer:

The whole world is an illusion. But there is only one reality. It is called our perception of events.

similarly, Buddhism is teaching us that all events are neither good or bad. They are just events. It is what we make out of
them that is either "good" or "bad", based on our complexes, insecurities and attachment.
I completely agree with this. It is the "perception" of events that is important, not the actual events themselves. I think the "perception" of events is greatly
influenced by the herding impulse and mass social mood. The reason I believe this to be true is... it has been scientifically proven that people will behave
differently when they make decisions in a group setting from when they make decisions on an individual basis (financial markets are influenced by decisions made
in a group setting). There have been numerous studies done in the fields of neurology, neuroeconomics, behaviorial psychology, and behaviorial finance that
prove this to be the case.

Yes, you are absolutely right. Why did the social mood change? That is the million dollar question, and unfortunately I do not have an answer. I don't think
anybody does. But imagine what you could do in this world if you did know what caused the shifts in mood and crowd behavior...

Have you ever watched a flock of birds fly through the air, or ever watched a school of fish swim through the ocean? It is interesting to watch how the flock of
birds will be flying in one direction and then all of a sudden the entire flock will change direction all at the same time as if they were following a track in the sky.
Likewise, it's just as interesting to see that school of fish swimming through the ocean in one direction and then see them jerk to the left and then back to the
right all in unison. How does each individual bird or each individual fish know that the rest of their group is going to change direction?

Contrast that to seeing one bird flying alone or one fish swimming alone. When they are alone they exhibit different tendencies. They seem to move with a
specific purpose; flying directly towards that tree or swimming directly over to that rock on the ocean floor. There is a definite difference in the behavior of a lone
bird versus a flock of birds. Whatever the secret is it has to do with being in that crowd setting. And human beings are no different. When we are in a crowd
setting our behavior and tendencies and our decision making is different than it would be if we were alone. Whether it is comfort in following the herd and not
standing out, or some chemical reaction in the brain when peer pressure is involved, I don't know but it is something to do with being in a crowd. You can work
on the details and let me know when you figure it out...

Seeing a flock of birds flying together or a school of fish swimming together is something easy for us to comprehend. It's just what they do. They show it on The
Discovery Channel all the time. Animals in a herd will tend to behave as a unit instead of behave as individuals. Why would humans be any different? Why would
our financial markets be any different? They are, after-all, just "crowd settings" arent they?


Here is a little exercise to prove that "news" does not move markets. In the diagram below you see two boxes: The one on the left contains some sort of
economic news and the box on the right is the movement in price of the financial market in question. Conventional wisdom states, "News moves the market," but
there has to be a physical connection between the news and the market. J ust because there is "news" out there doesn't mean the market magically moves up or
down to accomodate that news. So will somebody please show me the exact physical mechanism that transforms "news" into price movement? How, physically,
does a market tick up or down in price? Economic news comes out, and then what has to happen in order for the market to move up or down? Feel free to draw
on the diagram and replace the question marks with that mechanism that moves price.

I've explained very clearly that News does not always move markets , i didnt say it always does
-------------------------------------------- ----------------------------------------- ---------------------------------- --------------


You didn't answer my question. I asked somebody to show me the
There is no denying that news and the anticipation of news and reports influences the decisions of buyers and sellers
exact physical link
I do not believe that economic news moves markets. There is a ton of data that supports my theory and that is what I study. So I'm hoping that somebody who
between a news event and a market price movement.
does

believe that economic news is what moves markets will explain the link between news and price movement.
It is partly the Socionomic Theory, but it also gets into crowd behavior and neurology, etc. I think the markets are mostly psychological because a human decision
and action is what physically drives the markets up or down, and that humans are overwhelmingly controlled by various psychological factors which is evidenced
in the markets we trade.

You asked earlier why mood changes during the height of a trending market. I think it probably has something to do with the pendulum of social mood/fear &
greed getting too far to one side or the other, but I don't think there is an answer yet for why mood changes. But consider this... Say for instance that social
mood is in an upbeat phase and then it shifts to a negative phase. The financial markets will react instantly because they are so efficient at handling order flow.
As traders and investors go from upbeat positive feelings to negative feelings they will decide it is not worth it to own any risky financial products so they will sell
them. That selling pressure immediately causes a disruption in the order flow, and based on the simple logic of supply and demand, the market will start moving
lower as people continue to get rid of their investments. Your statement was that at this time of mood shift there will still be some positive sentiment left in the
market. But those positive feelings you are referring to are dealing with economic and other social areas where it takes time for there to be a reversal in trend. For
instance, it took the housing market so long to collapse because it simply takes so much time to come to the decision to sell the house and get it on the market.
That time element causes a delayed reaction.

While the mood shifts are quick, it simply takes time for economic, political, etc trends to work themeselves into a reversal of trend, whereas the financial markets
can react instantly to changes in mood and opinion. This is why we always see the financial markets move before the economic trends change. If the "news"
drove the markets then we would see some economic event happen before the markets changed trend direction, and that is something that does not happen.

My bottom line is that the social mood and psychological theories of the markets are more believable because there is more evidence, reason, and logic that
supports them than there is supporting theories that the "news" is the driving force of the market. And it's important to realize that the effecient market
hypothesis and the idea that the markets are driven by news is in fact only a theory. One of the most blaring things that discredits this theory is what we do here
in this message board every day... Elliott Wave analysis. If the markets were really driven by random news events the basic EW patterns would not occur time and
time and time again as they do. Think about it, if markets are driven by random events, how can they be patterened? If you really believe that news drives the
markets, and you also believe in the Elliott Wave theory, then you must also believe that the news events are also patterned. Under that theory, that would be the
only way for the markets to be able to be driven by news and still be patterened. So now the question becomes... What causes the news events to be patterened?
Social mood perhaps?

The EUR/USD has finally dropped to new lows, resolving the A-B-C rise, so I've closed out most of my short positions and am waiting to see what unfolds next.