It looks like dollar bulls could keep charging, possibly pushing USD/CAD all the way up to the channel resistance. What do you think of this short-term setup?
The pair already bounced off the channel support at the 1.3050-1.3100 area but is stalling at the mid-channel area of interest, perhaps waiting for another catalyst that could push it towards the top of the range. Stochastic is still pointing up, which means that buyers could stay on top of their game until the oscillator reaches the overbought zone.
I’m seeing a bullish flag formation around the middle of the channel so I’m hoping to enter on an upside break of the 1.3175 area. I’ll aim for the top of the channel around 1.3375 with a stop below the support and 1.3000 mark.
I’m thinking that crude oil weakness could come into play once more, as the U.S. oil rig count rose for the sixth consecutive week, putting upward pressure on production and supply. This, combined with the drop in demand during the summer months, could keep weighing on crude oil and the correlated Canadian dollar.
On the other hand, the Greenback could stay supported by Fed rate hike expectations for September. After all, the latest NFP report showed an upbeat surprise while the central bank’s labor market conditions index posted its first positive reading so far this year. I’ll be on the lookout for the release of the U.S. retail sales data later on this week to see if the dollar can keep up its climb.
Here’s my plan:
Long USD/CAD at 1.3185, stop loss at 1.2975, profit target at 1.3375. I’ve only risked 0.25% of my account on this potential 1:1 short-term play but I’ll be ready to add if price tests the channel support. Don’t forget to read our risk disclosure if you’re joining me!
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