Will the Top of the Range Hold for USD/CAD? – Trade Review

Trade Review: 2011-06-09 5:35 ET

I decided to close out my short USD/CAD trade before we head into a slew of major economic events. With global data and market reactions trending towards “negativeville,” I feel like if I held on to a Dollar short position I’ll get burned. Check it out!

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework post.

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The big sentiment shifter for me, and the reason why I got out of this trade, was the price action after the Australian Employment report today. Australia added a net 7.8K jobs versus expectations of 25K, and unemployment stayed the same at 4.9%–and the Aussie got hammered for it!

It seems that traders have no sympathy for weaker-than-expected results lately (also demonstrated with US employment last week), so with expectations of 20K vs. the previous month’s 58.3K jobs added in Canada, USD/CAD doesn’t seem to stand a chance of staying below .9800.

Also, with the uncertainty of the issues in Europe and the US weighing down on global growth expectations, and the uncertainty of the upcoming interest rate decisions from the UK and ECB, risk aversion seems to be the market driver going forward in the short term. So, with that line of thinking I decided to close my trade earlier at .9785 (as announced on my Twitter and Facebook pages).

Total: +15 pips/ +0.30% gain

I think this was a good move as I think there is too much uncertainty in the next couple of sessions, making the probability of success a real gamble.

I will continue to stay glued to the charts, and if a new idea comes up before the end of the week, you know where to catch it! Thanks for checking out my blog…stay focused and flexible…good luck and good trading!

Trade Idea: 2011-06-08 3:25 ET

Good morning! I don’t usually take trades on USD/CAD, but there are couple of recent, short-term sentiment shifters out there that makes the pair an interesting short play for the week. Check it out!

PCDPOD20110608.png

During a speech yesterday, Fed Chairman Ben Bernanke stated that until the U.S. sees “a sustained period of stronger job creation, we cannot consider the recovery to be truly established.” Now, while he did not mention a plan for “QE3,” he did say that accommodative monetary policies are still needed. I believe traders will take this as further reason that U.S. growth will continue to be weak (maybe even spark double dip recession debates) and continue selling the Greenback, especially against countries with relatively strong economic data like Canada.

I’m looking at trading the Loonie as Canada continues to look relatively strong to its neighbor to the south as it adds jobs and maintains a lower unemployment rate. Also, because oil is its biggest export (mainly to the U.S.) I think the pair will do well if we see oil prices continue to find support and rise from its current levels (just under $100/barrel on the NYMEX). With emerging market growth outpacing the developed world and their demand growing for the “black crack,” I think $90 – $100 a barrel is the cheapest it can go and probably rise from there during 2011.

Of course, the “X” factor is the recent news that crude inventories have slipped in the U.S., sparking speculation that OPEC will raise its production today to resupply fallen inventories and missing supplies from Libya. In the short-term, this may cause oil prices (and possibly the Loonie) to fall against the Greenback, but create a better price for sellers to get in USD/CAD short.

So, if the next few days plays out as I just described, I’ll look to go short on a retest of the major psychological level of .9800 before making my move. My stop will be above the strong resistance level that has held over the past few weeks (around .9820) and my target will be the bottom of this week’s volatility range at the MaPs level of .9700. Here’s what I am going to do:

Short USD/CAD at .9800, stop at .9850, pt at .9700

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly.

This trade structure makes it a potential 2:1 return-on-risk and if it is triggered, I’ll stay open to the idea of scaling in another position at .9750 to make it a 3:1 trade.

On the forex calendar, we do have events from both the US and Canada coming at the end of the week, most notably the Canadian jobs report this Friday. We may not see sustained moves until then, so as always, stay focused and flexible in this continually shifting environment.

Stay tuned for updates and adjustments by following me on Twitter and Facebook! Good luck everyone!

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7 comments

  1. Bryant Wood

    i got out at about the same time but looks like the drop we were looking for is now forming…oh well, it was better than loosing 

    Reply
    • Pipcrawlerpipcrawler Post author

      Yeah, the correlation between the pairs were all wacky yesterday.  But I still think I made the right decision and a win is a win.

      Reply
  2. MedicalChew

    Nice save.. It’s funny, just last couple of weeks the USD is the leper of all currencies and people rather use the swiss as a safe haven. Oh how quick the markets forget.

    Reply
    • Pipcrawlerpipcrawler Post author

      The markets seem to have a super short memory now-a-days… it’s almost maddening how often sentiment changes on a dime! haha

      Reply
    • Pipcrawlerpipcrawler Post author

      Yeah, got the reaction I wanted after that OPEC non-event, but it looks like it was short lived.  I’m gonna see what the market does during today’s Euro session before deciding whether to close ahead of the US and CAD trade balance data.

      Reply

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