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I’m still trying to buy some Greenbacks, and this time I think the Loonie might be the best counter currency given recent developments in data and geopolitics.

Uptrend Momentum In USD/CAD

USD/CAD Daily
USD/CAD Daily

I guess when I think about it even more, this is more of a short Loonie idea given the fresh catalysts that suggest sellers may continue to further control in the Canadian dollar.

From an economic data standpoint, we just had a string of weak economic reads from Canada, including a decline in jobs in May, retail sales and building permits sinking, and a pullback in business sentiment. All put together, this is not likely to prompt hawkish rhetoric from the Bank of Canada on raising interest rates at their upcoming July meeting, and likely why we’ve seen weakness in the Loonie recently.

Oil, one of Canada’s main exports, has likely had a bearish influenced on the Loonie as well as OPEC decided to increase output to the tune of an extra 1 million barrels per day, which combined with the ongoing trade war fears is likely prompting the pullback in crude oil futures prices in recent trade.

Yes, trade war fears are still a concern for now, and while this is likely to hurt the everyone, including the U.S., the U.S. dollar is likely to receive some buying support being that it is considered  one of the “safe haven” assets out there. Plus, with the Federal Reserve on pace to raise the Fed funds rate a few more times this year, it’s likely buyers are lurking at all price levels for now.

From a price action standpoint, we can see on the daily chart above that USD/CAD has been on a tear higher, moving roughly 6% from the April lows around the 1.26 handle. After a break and pop higher above the 1.3000 handle, it looks like the pair has run out of steam as we haven’t seen much momentum in the past three or four trading sessions.

With stochastic showing potentially overbought conditions, it’s possible we could see a pullback in the works, and if the market does get down to that broken resistance area around the 1.3000 – 1.3100 handles, I’m going to take a long position with a small amount of risk. My stop will be around the usual weekly ATR read, and my target will the next major potential resistance area around the 2017 high. Here’s what I’m doing:

Long half position USD/CAD at 1.3100, max stop loss at 1.2890, max target at 1.3700

I’ll be risking only 0.5% of my account on this position and as usual, I’ll look to maximize the trade by keeping the trade open and adding to my position on a rally higher and depending on what the next few major catalysts coming up (Canadian GDP, U.S. employment data, and business sentiment reads from both countries). They could be big volatility catalysts that could get the pair moving quickly, hopefully first to my buy area and then to that ambitious target.

Stay tuned and 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.