With forex traders flipping the script on bullish USD sentiment, I’ve decided to go with the flow. USD/CAD looks prime for a pullback higher; is it time to short?
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This is mainly a play at recent weak USD momentum thanks to the FOMC not raising rates in September, and the outlook for a rate hike in 2015 looking like low probability. It’s been a pretty strong rally for the Greenback all year from a swing low of around 1.1950, so there’s a chance there’s a little more giveback to go for the U.S. dollar.
This week, it looks like strong support at 1.2900 turned the market higher, but it may be short lived, especially around the Fibonacci retracment area (1.3115 – 1.3245) and the 100/200 simple moving averages. I’ll look to start building a small position there, with a stop above the strong resistance area at 1.3300, and my target will be the strong resistance area that held back in the first quarter of 2015. Here’s what I’m doing:
Short half position USD/CAD at 1.3145, max stop at 1.3320, profit target at 1.2800
I’m only risking 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.97:1. Of course, anything can happen in the forex markets, so if the story changes and the market becomes all enamored with the dollar again, I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!