For the new week, I’m starting out with a simple trend setup on USD/CAD. Will the trend be my friend this week?
Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.
I’m mostly focusing on the Canadian Dollar component of this pair with the Bank of Canada monetary policy decision coming this Wednesday. Of course I don’t know what the BOC will decide this week, but if there are no changes to policy or new comments to shift sentiment towards a bullish Loonie, then I think hopping on the current trend higher in USD/CAD makes sense. Also, even though that low interest rates may hang around longer in the U.S. were hinted last week by FOMC members, the U.S. dollar is still more attractive than the Loonie for now because of the improving conditions in the U.S.
With all of that said, the lower expectations of a rate hike may drive some USD selling this week, which is why I’m looking to test this trend on a pullback rather than going in at current levels. The area between broken resistance at 1.1100 and the 100MA looks like an area of potential support, so I’m throwing in orders there to go long. I’m going with a wide stop because of the rise in volatility and the BOC event coming up. And my max target is the next potential resistance, which was last tested in July 2009. Here’s what I am doing:
Long USD/CAD full position at 1.1175, stop at 1.0975, max profit target at 1.1700
I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 2.62:1. I’m also short Loonie with my NZD/CAD long position, but that’s a very long term position that’s already in profit, my over all downside risk with the Loonie is already limited.