Stalled USDCAD rally ready to resume
USDCAD rallied impressively in the first two weeks of May, then consolidated before declining. An attempt to break below the May uptrend line was thwarted, but the subsequent uptrend stalled at 1.3180.
However, the removal of disruption from month-end rebalancing flows, the prospect of weak Canadian economic data, improving US data, increased US rate-hike fever and stalled oil prices should combine to re-ignite the USDCAD rally.
The USDCAD technicals are bullish. The May uptrend line remains intact while prices stay above the 1.2970-1.3000 support zone. Fibonacci analysis suggests that a decisive break above 1.3815, the 38.2% retracement level of the January-May 2016 range, targets the 50% level at 1.3575.
Management and risk description
There are plenty of risks to this trade, particularly Friday's Canadian and US jobs reports. Weak US nonfarm payrolls and a strong Canadian employment report would likely see the stop loss triggered. Furthermore, weaker-than-expected US data would undermine rate-hike arguments, lead to US dollar selling and trigger the stop loss. A spike in WTI crude oil prices to the $53-%55.00/barrel level would also be detrimental to this idea.
Trade idea parameters
Entry: Buy ½ position of USDCAD at market (currently 1.3070), balance at 1.3020
Stop: 1.2959 offered
Time horizon: 7 days
USDCAD 1-hour chart noting broken intraday downtrend uptrend from May 3
USDCAD 4-hour chart with take-profit and stop-loss levels shown
USDCAD 5-year daily chart with moving averages
— Edited by John Acher
Non-independent investment research disclaimer applies. Read more