Forex Watchlist: USD/CAD Break and Retest

Crude oil has been tumbling again these days, causing USD/CAD to make an upside breakout from its symmetrical triangle pattern. But with the FOMC statement coming up, I’m inclined to wait for a pullback before going long.

Applying the Fibonacci retracement tool on the latest swing high and low on the pair’s 4-hour time frame shows that the 38.2% level coincides with an area of interest and the broken triangle resistance. I’m gonna watch how the pair reacts to the 1.3100 major psychological level before trying to hop in a long position. Besides, stochastic is on the move down from the overbought region for now so a correction could take place.

USD/CAD 4-hour Forex Chart

USD/CAD 4-hour Forex Chart

No actual interest rate changes are expected from the FOMC this week, but traders are interested to see whether Fed policymakers take a more cautious tone or not. As my buddy Forex Gump neatly summarized in his U.S. Economic Snapshot, there were notable improvements in employment, business activity, and consumer spending that the Fed might highlight. Because of that, FOMC members could maintain a hawkish view and suggest that rate hikes are still possible before the end of the year.

Apart from that, positive expectations for the advanced Q2 GDP release later on in the week could keep the Greenback supported. Analysts are eyeing a possible 2.6% expansion, more than twice as much as the 1.1% growth figure for the first quarter of the year.

As for the Canadian dollar, I’m expecting oil prices to keep weakening on resurfacing oversupply concerns. Markets seem to be pricing in a buildup in stockpiles for the week, probably even pushing crude oil to lows not seen since March. Canada is also set to print its monthly GDP reading later on, likely showing a 0.5% contraction for May.

No entry orders in for now since I’ll be waiting for the post-FOMC dust to settle before taking a trade. As always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.

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