USDCAD rallied throughout July in a one-way ride that finally hit a wall at 1.3244, the same wall that contained all previous rallies since April.
The sigh of relief that was heard around the world when the Federal Open Market Committee delivered another cautious statement has injected a short-term cure for risk aversion symptoms that drove USDCAD below intraday support at 1.3160.
The US data due in the next few days may have little impact as the release comes too close to the July 27 FOMC meeting, depriving USDCAD bulls of additional support.
The intraday technicals are bearish. The break below 1.3190 snapped an uptrend that been intact since July 15 and now warns of further weakness ahead. The subsequent decline below 1.3160 just above the 38.2% Fibonacci retracement level of the July 1.2860-1.3244 range which is at 1.3096.
A break of this level will extend losses to 1.3010, the 61.8% Fibonacci retracement level.
It is not too much of a stretch to expect additional USDCAD weakness on the approach to the weekend. Bullish USDCAD sentiment has dissipated with the less-than-hawkish FOMC statement.
USDCAD bulls may look to reduce positions ahead of the long weekend in Canada and on the risk of additional USDCAD selling for month-end portfolio rebalancing flows.
Management and risk description
This is a very risky trade. The expected follow-through selling below support at 1.3090 could just be a hallucination. That level could actually be the launchpad for further gains.
The anticipated USDCAD selling for month-end portfolio rebalancing may not be accurate or the size of the flows may not be large enough to be material.
OIl prices could fall below $41.00/b which would likely trigger the stop loss.
Entry: sell ½ USDCAD at market (currently 1.3170), balance at 1.3210.
Time horizon: close by 1600 GMT Friday.
USDCAD 30 minute with stop loss level shown:
Source: Saxo Bank
USDCAD one-hour with Fibonacci levels:
USDCAD five-year daily with moving averages:
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Source: Saxo Bank
— Edited by Michael McKenna
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