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I’ve been hoping to catch the selloff on USD/CAD for quite some time, and it looks like a good pullback setup is materializing this week. What do you guys think of this correction play?

Short USD/CAD Idea

The pair broke to the upside of the short-term ascending channel I was watching earlier this week, signaling that a larger correction may be underway. Price already seems to be bouncing off the 38.2% Fibonacci retracement level on the 4-hour time frame, but this week’s set of top-tier events for both the U.S. and Canada could still bring in more volatility.

For one, we’ve got the FOMC decision on the docket and the event might give the dollar some upside if policymakers keep the prospect of a December hike on the table. After all, the August CPI readings turned out better than expected, so the Fed could still make good on its promise of tightening three times this year.

Monetary policy expectations for the BOC could also be dictated by the upcoming Canadian CPI and retail sales reports on Friday as strong figures could allow Loonie bulls to charge again. However, buyers might be a bit more cautious since BOC policymaker Lane just warned that they are keeping a watchful eye on Loonie strength.

USD/CAD 4-hour Forex Chart
USD/CAD 4-hour Forex Chart

I’m looking at a potential short entry at the falling trend line connecting the recent highs and the area of interest around the 1.2400 mark. This is close to the 50% and 61.8% Fibonacci retracement levels, too.

Stochastic looks ready to turn lower but might have some room to climb before indicating overbought conditions. I’m inclined to stay patient for now and wait for at least the FOMC statement to pass before setting actual limit orders. Tough to tell how the dollar might toss and turn during the announcement and presser!

I’m also open to shorting at market after the event if price is still hanging around my sell zone. I’m gonna put my stop just past the swing high to give me room to cut losses if necessary, and I’ll aim for the swing low near the 1.2050 minor psychological mark as my initial target.

Here’s my plan:

Short USD/CAD at 1.2375, stop loss at 1.2675, profit target at 1.2075 for a potential 1:1 play with 0.50% risk. 

Cheers,

Happy

See also: Q2 2017 Trading Performance Review

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