After seeing that stellar U.S. NFP report last week, I’ve decided to join the dollar bulls’ bandwagon with this long USD/CAD forex setup. What do you guys think?
The pair recently broke above the top of the descending triangle formation I’ve traded previously, indicating that that further gains are likely. With the pattern roughly 400 pips in height, I’m thinking that the resulting rally might be of the same size.
Fundamentals suggest that the Greenback might keep climbing, especially since forex market participants are once again buzzing about a potential Fed rate hike in June. After all, the U.S. economy is already enjoying full employment with its 5.5% jobless rate and all it needs is to bring annual inflation back to the Fed’s target range.
On the other hand, Canada might be in for more economic weakness since the full impact of the oil price slump hasn’t kicked in. Aside from that, the prospect of Fed tightening could bring risk aversion back on the table and weigh on the higher-yielding commodity currencies.
I wasn’t able to catch the actual breakout move so I’ll be going long at market with half my usual risk then adding to my position if price pulls back to the broken triangle resistance. Here’s what I’ve got:
Long USD/CAD at 1.2625 (0.5% risk), buy limit order at 1.2500 (0.5%) risk, stop loss at 1.2350.
I’ll be aiming for the 1.3000 major psychological mark as my ultimate profit target but I could lock in profits along the way, depending on how upcoming reports turn out. For this week, I’ll be keeping close tabs on the U.S. retail sales release and the Canadian employment report. Make sure you check out our risk disclosure if you’re planning on taking this forex trade, too!
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