3 Reasons Why I Shorted USD/CAD – Trade Closed

Trade Closed: 2012-09-21 2:05

Just when I thought that I had a good trade setup this week, two wildcards had showed up to drag the Loonie against the Greenback!

The first is the continued drop in oil prices. Oil slipped (pun intended) for the fourth day in a row last Wednesday after the U.S. oil inventories went up by another 8.5 million barrels last week. That’s a lot higher than the 1 million barrels expected by analysts!

USD/CAD Trade Closed

It also didn’t help my trade that investors are getting more concerned about the EU leaders’ commitment to a banking union, the Spanish bailout, and a potential reversal from the QE3 rally. Lastly, USD/CAD wasn’t able to withstand the onslaught of Loonie sellers as it broke above its consolidation on the near the .9750 area. The pair broke above its resistance and went up to the .9800 area. Boo!

Thank goodness I only risked 0.5% of my account! Here’s the damage:

P/L: -50 pips / -0.5%

Oh well. It was a good technical setup at the time. With market sentiment changing almost as fast as I change my mind over what dishes to cook for the weekend, I guess it would be beneficial to my next trades if I watch my trades more closely and pay more attention to fundamentals and market sentiment.

How about you? How have your trades been doing this week?

Trade Idea: 2012-09-19 1:45

I’m back in the trading grind with this short trade idea! I spotted three technical signals to short USD/CAD, on top of my bearish fundamental bias for the pair, so I jumped in!

For one thing, Big Pippin pointed out this bearish divergence that formed on the pair’s 4-hour time frame as price made lower highs while stochastic made higher highs. When stochastic started to move further down and the 38.2% Fib held as resistance, I decided to pull the trigger and short at market around .9730.

USD/CAD Trade Idea

Another reason why I’m bearish on this pair is that it’s on such a strong downtrend that it even broke below the .9850 major support level and made new yearly lows last week. In fact, after a slight pullback, the pair formed a spinning top on its daily chart.

And let’s not forget the huge gap between the Fed’s and BOC’s interest rate expectations. On the one hand, we’ve got the BOC considering tighter monetary policy as they believe that domestic demand will keep the Canadian economy afloat for the long haul.

On the other hand, the Fed finally gave in to QE3 last week as Big Ben and his men announced an open-ended easing program alongside Operation Twist and an extension of its low interest rates pledge.

So there you have it! Three technical signals are telling me to short USD/CAD now and these are 1) the bearish divergence on the 4-hour time frame, 2) the 38.2% Fib holding as resistance, and 3) the spinning top on the daily chart. Of course this reinforces my bearish fundamental bias on USD/CAD based on their central banks’ monetary policies.

Here’s what I did:

Shorted USD/CAD at market (.9730), stop loss at .9780, profit target at .9630.

I’ll be moving my stop to entry once price dips below the .9700 handle and if all goes well, I’ll be lookin’ at a 2:1 return on this trade. I risked 0.5% of my account on this trade and you should check out our risk disclosure if you plan to take the same trade.

Do you think I’ll be able to win this one?

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Have fun and good luck trading this week, friends!

Happy time

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18 comments

  1. RB

    I’m conflicted, because I see your bearish signals. But I also see an ascending triangle forming and the daily MACD looks like it will finish above the 0 line after a decent round pattern…

    Reply
    • RB

      Well I took the long and TP hit at .9795. I wanted so bad to pull the trigger on a short position at .9800, but I chickened out. As we get close to NY close, it looks as if a nice shooting star is forming on the daily chart right in the middle of the channel.

      Your short call is looking very promising for tomorrow! I’ll join you if that candle finishes around .9770 today!

      Reply
        • RB

          In at .9766 (50.0 fib level) just after NY close yesterday. Looks promising on bearish divergence on 4h MACD, 61.8 fib level held, and the shooting star on the daily chart (that turned into more of an engulfing candle).

          I was hoping for a surprise CPI number to really help the push down. But it looks like 20 pips may be all that comes out of this trade… CPI seems to have stalled the push.

          Reply
          • RB

            The three spinning tops over the last 12 hours (4h chart) is illustrating my indecision that apparently a few other traders are also wrestling with… haha

  2. ant2a

    I am with you from 0,9740! Opened this position for the Bearish divergence and because it is at the middle of the channel (use Andrews’ Pichfork tool). So I have same target but more tight SL0,9767.

    Reply
    • Happy Piphappypip Post author

      Yep, it does look like it’s in the middle of the channel, too! I hope your stop didn’t get hit though. It looks like the pair is stuck around the .9750 mark…

      Reply
  3. doggypip

    I entered this trade based on my trend following system giving me a signal for it which was reinforced by fundamentals for the pair. After taking the trade i came and saw both u and big pippin’s post so now i feel even more confident about it. Thanks for always sharing your ideas and analysis hpip

    Reply
    • Happy Piphappypip Post author

      Yipes, it does look like a sketchy inverse head and shoulders pattern. Well, my stop is located just above the neckline so I’ll be out of the trade in case the pattern is validated. Thanks for the heads up!

      Reply
    • Happy Piphappypip Post author

      Yep, I just read the news earlier and that’s what I’m worried about right now! It looks like resistance around .9750 is holding at the moment and my USD/CAD setup is still valid so I’ll hold on for now. Might just be a huge retracement for oil prices after all… What do you think?

      Reply
      • Firstfx

        I am somewhat surprised that the USCAD has not gone much higher based on the oil price decrease. So it so far appears to be a north and south fight. A small triangle (can be seen on the one hour chart) just broke to the upside but then again it was not much of a break either.

        Reply

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