Short term
Trade view / 01 June 2016 at 13:50 GMT

Stalled USDCAD rally ready to resume

FX Consultant / IFXA Ltd

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

Target: 1.3300

Time horizon: 7 days

USDCAD 1-hour chart noting broken intraday downtrend uptrend from May 3
Source: Saxo Bank

USDCAD 4-hour chart with take-profit and stop-loss levels shown
Source: Saxo Bank

USDCAD 4-hour chart with Fibonacci retracement levels
Source: Saxo Bank

USDCAD 5-year daily chart with moving averages
Source: Saxo Bank

— Edited by John Acher

Non-independent investment research disclaimer applies. Read more
03 June
Michael O'Neill Michael O'Neill
UPDATE: This idea is in severe danger of becoming toast thanks to the ugly NFP report.
03 June
Estuardorlemus Estuardorlemus
Mike you think NFP report could mantain the USDCAD downtrend for long ?


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