The big events of late August and early September are behind us (Jackson Hole, NFP, ECB meeting), yet the Fx market remains as quiet as before. As things stand, it looks like the light trading activity will continue going into what could be the biggest event of the month - the Fed meeting on September 22.

 

All traders care about right now is when the Fed will begin tapering QE. The disappointing NFP last week pushed back those taper expectations and significantly undercut the dollar rally. As we are seeing, the USD is still struggling this week and will likely continue to do so at least until the Fed meeting. Then, the Fed could still hawkishly surprise the markets on September 22 and provide the much-needed boost to finally lift the USD higher.

 

But, let’s leave the discussion of the Fed meeting for a day closer to September 22, while for this week, we’ll look at the technical situation on the USDCAD pair and consider the potential trade setups that could be provided here.

 

 

USDCAD remains at elevated levels, with the CAD recently suffering a somewhat larger decline against the USD compared to its commodity-linked peers, AUD and NZD. See the next section for why fundamentals should eventually support the Canadian dollar again later this year.

 

As for the technicals, USDCAD is increasingly displaying bearish signs. However, key support levels have not been broken, nor is the pair near an extreme overbought area or a big resistance zone. Hence, for now, it remains in a loosely defined range and could stay here for a few more weeks.

 

There are two important price zones for USDCAD in the current context. Those are 1.25 as support and 1.28-1.30 as a resistance zone. In addition, USDCAD is shaping up a head & shoulders pattern, which would also get triggered by a bearish break of the 1.25 support.

 

 

The solid CAD fundamentals favour bearish setups on this pair, although there is certainly a possibility that USDCAD may rebound again at the 1.25 support.

 

 

The fundamentals for the Canadian dollar remain positive, with the Bank of Canada still finding itself in a leading position in the race of withdrawing QE stimulus and eventually raising rates. In this regard, the CAD should sooner or later find its feet again and start outperforming other currencies again. 

 

That said, the biggest risk for CAD traders remains a deterioration in risk sentiment or a big sell-off in commodities (which, as it often happens, could occur simultaneously at the same time). While commodity markets continue to be broadly supported, there is some evidence showing up that China and other big countries are unhappy with the price of oil around $70 per barrel as well as with further increases in the prices of key industrial metals. China is also taking actions to ease price pressures by selling state oil and metal reserves at lower prices to domestic companies. Whether and how much this will affect the broader commodity markets remains to be seen, but it’s a space worth watching for CAD traders.

 

The Canadian election on September 20 is unlikely to be a big risk event for the CAD, though Fx traders will keep an eye on it out of caution.

 

 

Look for short entries at levels close to the 1.28-1.29 highs (if the price rallies that high again), or on bearish breakouts below the big 1.25 support area.

Note that if risk sentiment has reversed completely and risky assets are selling off hard, then it wouldn’t be appropriate to look for short trades on USDCAD around 1.28-1.29. Selling USDCAD near this resistance would work best if the relatively stable environment continues and USDCAD has been driven higher on a technical or some other temporary factor.

 

• Long USDCHF from 0.9050 (open and in progress to target, currently 120+ pips in profit); trade idea sent on June 18 and triggered on August 5
• August 16 - Short EURJPY from 128.90, closed at breakeven after bearish moved reversed up = 0 pips ; trade idea sent on August 13

 

 

 

Best Regards,
Philip
Senior Forex Manager
FX Trading Revolution
w: www.fxtradingrevolution.com 

e: philip@fxtradingrevolution.com

 

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