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Risk sentiment is solidly negative to start the new week and with no major catalysts immediately ahead, this technical setup on USD/CAD one to watch! Will the bulls hold or is a reversal / fakeout ahead? 

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Fresh Market Headlines & Economic Data:

UK heading for 50,000 coronavirus cases per day if no action is taken, government scientists warn

Wall Street hits near seven-week low on virus fears, stimulus fog

Oil prices slip on potential Libyan output return, demand concerns

Fed’s Kaplan, Wary of Bubbles, Dissented to Preserve Flexibility

The Chicago Fed National Activity Index (CFNAI) was +0.79 in August, down from +2.54 in July.

New Home Prices in Canada Jump Most in Three Years on Lumber

ECB’s Lagarde Says Stimulus Can be Ramped Up Amid Uncertainty

Germany’s economic rebound set to slow further- Bundesbank

UK House prices: Price of property coming to market up 0.2% m/m in September vs. -0.2% in August – Rightmove

UK manufacturers see little sign of ‘V’-shaped recovery

UK ‘at critical moment’ in controlling virus spread, says Grant Shapps

New Zealand ends all pandemic restrictions outside main city of Auckland

New Zealand Credit card billings fell -5.8% m/m in August vs. +2.2% m/m in July

Upcoming Potential Catalysts on the Economic Calendar

Fed Brainard speech at 4:00 pm GMT
Fed Kaplan & Fed Williams speeches at 10:00 pm GMT
RBA Debelle speech at 12:30 am GMT (Sept. 22)

What to Watch: USD/CAD

USD/CAD 1-Hour Forex Chart
USD/CAD 1-Hour Forex Chart

On the one hour chart above of USD/CAD we can see the pair breaking higher, likely due to a combination of negative risk sentiment as coronavirus fears grow, and as oil prices take a dip on the session.

With no major catalysts ahead other than Fed speak for the rest of this session, we think traders could remain focused on these themes for the time being and volatility could remain higher for the rest of the session, especially if we see surprise commentary from Federal Reserve members later.

For the bulls, the move higher looks overdone as the stochastic indicator is signaling oversold conditions, and given the fact that today’s move  is well above the daily ATR of around 85 pips.

Going long at these levels is a low probability setup, but consider scaling in on a pullback or just waiting for a 40 – 50 pullback to last week’s short-term highs before building a long position.

For the bears on USD/CAD, with the trend firmly in the hands of the bulls, watch out for bearish commentary from the Fed officials before considering a short position.

For the brave, the current move higher looks to be over extended, so a very short-term short with nibbler position is an option to consider. Keep in mind it is a low probability option unless we do get dollar bearish comments from Fed speakers later in the day.