The forex markets have been tough with trends settling into ranging patterns lately, but there may be an opportunity in USD/CAD with its recent slow grind higher.
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On the technical side, this is a simple trade setup on USD/CAD as the pair’s slow move higher through August and September makes for a textbook trend play to take. The setup is that there was strong resistance around the 1.3300 handle in the last couple of months, but that has now been broken, retested and held as support in the last couple of trading sessions. This behavior may draw in trend traders, potentially turning this into a momentum move higher .
I believe this potential move higher is supported by a couple of fundamental themes that is likely to continue for the currency pair: a potential upcoming U.S. rate hike to support the Greenback and a weakening Canadian economy, with some pressure coming from weakening oil prices (one of Canada’s main exports).
My main man Forex Gump made a convincing argument for weaker oil prices (and possibly a weakening Canadian dollar) with his post covering Bank of Canada Governor Poloz’s recent speech. And on the other side of the pair, we recently heard speeches from FOMC members that hint we may see a rate hike in the U.S. before the end of the year. With both economic and monetary policy divergences, it’s no wonder that USD/CAD has been moving higher, and why the odds are it’ll continue to move higher.
That’s why I look to go long, but with a heavy economic calendar lineup for both the U.S. and Canada, I’m going to be conservative with my entries and stop. I’m going in with small positions at multiple levels on a pullback and a wide stop of at least one weekly ATR. Here’s what I’m doing:
Long half position USD/CAD at 1.3300, stop at 1.2975, max target at 1.4000
Long half position USD/CAD at 1.3200, stop at 1.2975, max target at 1.4000
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 2.82:1. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. And if I’m in at it goes my way to 1.3500, I’ll re-assess the market and make adjustments if necessary. Stay tuned by following me on Twitter and Facebook!