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Hey! This is Philip with this week's trade idea of the Free Profitable Forex Newsletter!
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After the heavy losses in August, USDCAD appears to be in some consolidation/range mode presently. The downtrend in USDCAD was part of a broad USD decline that transpired from May/June till the end of August.
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With a technical bullish breakout of the July/August downtrend channel, USDCAD seems set for a further rebound higher.
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We take a look at the specific reasons for that below.
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CAD is slightly expensive at these levels while USD has scope to jump on positioning liquidation
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Short dollar positioning is at 20-year extremes while CAD seems to have overshot to the upside driven by risk appetite and booming stock markets. However, inventors are beginning to question the recent market trends, and that could easily lead to a reversal over the coming weeks, especially with such extremes in positioning.
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Another factor aiding the recovery in the Canadian dollar has been the recovery in oil prices since the April low. With oil taking a hit recently amid OPEC downgrades, another factor is out of the equation that has been supporting the CAD. With the dollar set to rebound broadly, USDCAD is likely to follow suit. Also, the fair value for USDCAD is close to around 1.35 rather than 1.31, where the pair currently trades.
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The Fed meeting tonight is a risk event, though not so much in the sense of determining the direction of USDCAD, but more just as a source of two-way volatility. While big decisions or any surprises from the Fed are highly unlikely, we can expect some larger price swings, especially when Powell will speak during the press conference. However, don’t let the wild action fool you. USDCAD’s direction is still most
likely up for the reasons listed above. Of course, in trading, nothing is certain, and conditions can change quickly. So, if some of the above factors start to change and the fundamentals turn bearish, then this long USDCAD would be at risk of failing.
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USDCAD broke out of the bearish channel last week, ending the two-month downtrend. The breakout was confirmed on several occasions already, such as the retests of the broken resistance levels in the 1.3130 - 1.3150 price zone on intraday timeframes. This type of price action increases our confidence that the bottom is in and that USDCAD is ready to progress higher.
On the daily chart, we can see that the 1.35 area is technically important. Aside from past highs and lows there, the 100-day and 200-day moving averages also concur there. The 55-day moving average (blue line) is the first resistance on the way higher around the 1.33 level.
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USDCAD has already formed a rising support trendline after the breakout (see chart below). Support from this rising trendline currently stands at 1.3140 and has been tested by the market (the trendline is better visible on 4H chart). If the new bullish leg higher is as large as the first
one (200-250 pips), then this projection also points to the 1.34 - 1.35 area as a potential target.
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Entry:
- Look to enter around current levels 1.3180
- Alternatively, you can enter during or after the Fed meeting, potentially at better levels. However, the downside, in this case, is that possibly the market may quickly move higher on the Fed event before you have a chance to enter. Thus, you may miss the entry at current levels.
Stop loss:
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The 1.3040 lows should hold on a daily close, thus this is the appropriate place for a stop loss.
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Also note, on smaller timeframes, the 1.3140 price zone from the support trendline (discussed above) should hold. However, with the Fed event ahead of us tonight, there is a risk that this trendline undergoes a fake breakout on a surge in volatility.
Target:
- Toward the 1.34 - 1.35 area
- 1.33 is the first moderate resistance, but if the bull move gets going, this resistance shouldn’t be enough to stop it.
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Trade signals from the past weeks
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TOTAL: 0 pips in the past week
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TOTAL: +2750 pips profit since October 1, 2018
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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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