Now that the FOMC statement is over and Fed officials seem to be relatively hawkish, I’m setting my orders for this USD/CAD pullback play. As I’ve mentioned in my watchlist blog post earlier this week, I’m counting on a positive assessment of U.S. economic performance to keep Fed rate hike hopes in place for later this year.
While the actual announcement resulted to dollar weakness due to the pickup in risk appetite, I’m inclined to think that the Greenback can regain ground soon, particularly against the Canadian dollar. After all, the U.S. crude oil inventories report showed an increase in stockpiles instead of the projected decline, possibly causing oversupply fears to keep dragging the commodity and oil-related Loonie again.
I’m looking to enter around the major psychological levels that line up with the Fibs so I’m setting long orders at 1.3125 and 1.3025. Stochastic is still approaching the oversold area anyway so there could be room for a larger retracement to the 61.8% Fib. I’ve set a wide stop below the swing low and triangle support so I’ll have room to exit early if necessary. As for my target, I’m aiming for roughly the same height as the triangle pattern, which is around 700 pips.
Moving forward, we’ve still got the U.S. advanced GDP reading up for release and I think this could also provide a strong catalyst for dollar movement. A stronger growth figure of 2.6% is eyed for Q2 and there might even be a chance for an upside surprise, possibly sending the dollar much higher across the board. On the other hand, Canada’s monthly GDP release on Friday is expected to show a 0.5% contraction.
Here’s my plan:
Long USD/CAD at 1.3125 and 1.3025, stop loss at 1.2775, profit target at 1.3775.
I’ll be risking 0.25% on each entry for a total of 0.50% if both positions are opened, going for around 2.3-to-1 R:R based on my average entry price.
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.