Free Profitable Forex Newsletter
Hey! This is Philip with this week's trade idea of the Free Profitable Forex Newsletter!
We've been following the USDCAD pair with close interest since early March when the global Coronavirus pandemic and the oil price war broke out at about the same time. The Canadian Dollar, as a result, has been one of the hardest-hit currencies in this (sort of) double crisis.
CAD, thus, remains a preferred currency to short in this environment, particularly versus the Dollar and other safe-havens. We discussed this same idea a few weeks ago, but the massive liquidity injections by the Fed killed the broad USD rally, and USDCAD corrected too since then.
But, now there are signs that this retracement may be over, especially as USDCAD tested the 1.40 support area thoroughly and retraced 50% of the February-March rally. Back then, we said that this 1.38 - 1.40 area is the place where USDCAD may bottom, and indeed the pair bounced strongly yesterday right here.
USDCAD still poised to move toward 1.46 and 1.50
The Canadian Dollar fell yesterday on reports by Statistics Canada that the economy has contracted by 9% in March, and later in the day, the Bank of Canada expanded its QE program.
On the oil front, the OPEC+ countries made a shaky agreement for production cuts, but it has merely resulted in a shallow retracement that has now been completely erased. It's clear that these production cuts are not enough to make up for the huge decline in oil demand, and thus Oil prices are set to remain weak in the months ahead. That should keep the pressure on the Canadian Dollar as well.
Combined with the uncertainty over the COVID-19 crisis, CAD should be much weaker, and USDCAD should be trading higher. A revisit of the 1.46 highs and even a move to 1.50 for USDCAD looks probable.
Trade plan for a disrupted market
Picking the exact entry point for such a trade is not so simple, as you might imagine. The wild gyrations have distorted the Fx charts completely, and there are virtually no good-looking technical patterns or formations.
However, the strong bounce yesterday (over 200 pips) does set a firm bottom in this 1.38 - 1.40 area, at least for now. This bullish candle also engulfed the previous 6 daily candles - normally a powerful technical signal.
Ideally, USDCAD would move a little lower from here toward the 1.40 area, which would allow for a better entry point. 1.40 is a key area to watch for this scenario because this is where the monthly pivot point stands, in addition to 1.40 being the most-watched psychological price area too.
An entry near 1.40 with a stop below 1.3950 should offer relatively attractive risk-reward with decent probabilities on our side. As we all know, it is difficult to predict where the price may bottom exactly. So, USDCAD may continue up without looking back much, or it may again test prices toward the 1.3850 low.
Those who wouldn't want to miss a potential USDCAD rally, and don't mind a wider stop, can consider entering around current levels (1.4080) with a stop below the 1.3850 lows and a target toward 1.46 and 1.50.
However, for the purpose of our newsletter, and given the highly unusual market environment at the moment, we will go with the safer option and the setup with a tight stop, even at the expense of missing the entry point here.
- Wait for USDCAD to move a little lower toward 1.40;
- then look for entry points on bullish intraday patterns around this area
Stop loss:
- Place the stop below 1.3950;
- For example, 1.3935 would provide decent breathing room for any possible tests to the downside.
Targets:
- 1st) 1.4350 - this is where the most recent prior highs and the 61.8% Fib retracement stand
- 2nd) 1.46 March highs
- 3rd) 1.50 ultimate target
Trade signals from the past week
TOTAL: 0 pips in the past week
TOTAL: +2790 pips profit since October 1, 2018
If you have any questions or feedback, don't hesitate to reply to this email.
Thank you!
High Risk Warning: Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.
Any opinions, news, research, predictions, analyses, prices or other information contained in this newsletter is provided as general market commentary and does not constitute investment advice. FX Trading Revolution will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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