Despite recent NAFTA rumors and rhetoric shaking up the Loonie, I’m still bullish on the Loonie over the rest of the majors. Is this textbook bearish setup on USD/CAD worth checking out?
In case you missed it, Loonie bears came out roaring this week after speculation that the U.S. would walk away from NAFTA spiked this week. But Canada’s foreign minister Chrystia Freeland also said that there is a possibility for a positive outcome, so to me it’s all noise until we get something more concrete on whether or not NAFTA will fall apart or not.
Until then, I’m staying positive on the Loonie in the short-term, despite recent weak data from Canada, because the overall economic data still calls for above average odds of the BOC making some tightening moves or hawkish rhetoric.
And this pullback could be another opportunity to play that bias, this time against the US dollar, which has seen some trouble in recent weeks, lately on rumors that China may slow or halt purchases of U.S. government bonds.
I think its possible we’ll get a bit more USD weakness this week with the upcoming U.S. retail sales and CPI data, with leading indicators pointing to some mixed to weak data in December.
With that said, I’m taking a shot at shorting USD/CAD, but with a wide stop of two times the weekly ATR with the NAFTA situation floating around. And with an initial target around the September 2017 lows, this makes this trade a longer-term swing setup unless we see the U.S. pull out of the NAFTA agreement. If that’s the case I’ll likely close down with the quickness to limit my max loss to much less than my initial risk. Here’s what I’m going to do:
Short half position USD/CAD at 1.2500, max stop at 1.2875, initial target at 1.2075 for an initial potential 1:13 return-on-risk
I’ll be risking only 0.5% of my account on this position and as usual, I’ll look to make adjustments if my first target is reached, which would likely to be adding to my position/roll stop up to max out the trade if NAFTA stays intact and we get something hawkish from the BOC. If that’s the case, this could turn into a longer-term big winner. Whatever the case may be, stay tuned for updates, good luck and good trading!
As always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.