With everyone and his momma expecting the FOMC to hike interest rates today, will USD/CAD make a much-needed bounce off this major support area? Here’s the setup I’m watching for the upcoming Fed decision.
USD/CAD Trade Setup
The pair has been trading inside this ascending channel formation for almost the entire year, and now it’s making another test of the bottom. This happens to coincide with the long-term area of interest around the 1.3100-1.3200 levels, which might hold as strong support. At the same time, stochastic is indicating oversold conditions so sellers could give way to buyers from here.
An interest rate hike combined with hawkish remarks from the Fed could be enough to restore dollar strength, allowing USD/CAD to climb at least until the middle of the channel near the 1.3400 major psychological resistance or all the way up to the top of the channel at 1.3600. As Forex Gump mentioned, the Greenback still managed to chalk up some pips after last year’s Fed rate hike, even though most market participants already saw it coming.
However, there’s a strong chance that Fed head honcho Yellen would want to avoid a market fuss so she might throw in a few cautious remarks, citing that they might sit on their hands for much longer while figuring out how the Trump administration might affect their economic outlook. If policymakers still upgrade their growth and inflation forecasts while hinting that rate hikes are on the table for the next six months or so, USD/CAD might have a shot at recovering from its recent slide.
I think I’ll watch how the market behaves at the start of today’s New York session first in order to gauge sentiment before entering any orders. If I do go long around this support area, I’ll go with a tiny position first and a wide stop below the 1.3000 handle to give me room to cut in case a sharp breakdown happens. Make sure you’re following me on Twitter to get my latest updates and don’t forget to check out our risk disclosure, too!
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