USD/CAD: Break and Retest Scenario?

With the recently released U.S. economic reports failing to impress and the debt ceiling deadline coming up, I have a hunch that dollar selling will resume pretty soon. Here’s my anti-dollar setup on USD/CAD:

USD/CAD Trade Idea

As you can see from the chart above, the pair has just broken below a long-term rising trend line on its 4-hour time frame. That could be a signal that a reversal from the previous uptrend is in the cards, but I think it might be best for me to wait for a retest before shorting.

When I pulled up my handy-dandy Fib tool on the recent breakdown, I noticed that the broken trend line is somewhere in between the 50% and 61.8% retracement levels. Stochastic is already in the overbought region, but the pair might still pull up a little higher to the 1.0400 major psychological resistance.

I haven’t set my limit orders yet, as I am still waiting for today’s set of U.S. reports to figure out if I should go for an earlier entry around the 1.0350 minor psychological resistance. After all, recent U.S. data such as durable goods orders and new home sales have been enough to convince traders that an “Octaper” is unlikely. Another round of downbeat figures today might be enough to push the dollar lower!

On the other hand, the Loonie seems to be one of the more resilient currencies these days, as Canada’s retail sales report printed stronger than expected results earlier this week.

What do you think of this trade setup?

Happy time

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