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With crude oil prices hitting a ceiling and risk aversion returning to the markets, I’m thinking USD/CAD might be done with its dive as it tests an area of interest.

Long USD/CAD Idea

I know this trade idea seems a bit contrarian since the BOC just hiked interest rates while forex junkies are still doubtful that the Fed could pull another tightening move in September. But if there’s one thing I do know about USD/CAD, it’s that the pair tends to respect horizontal inflection points really well!

On the weekly time frame, it can be seen that USD/CAD is sitting right on the floor around the 1.2700 major psychological mark, which lines up with a former resistance level. Stochastic is already indicating oversold conditions but has yet to turn higher to reflect a pickup in bullish pressure.

USD/CAD Weekly Forex Chart
USD/CAD Weekly Forex Chart

In terms of fundamentals, it looks like the hype over crude oil rallies and the BOC interest rate hike is starting to fade. Traders are now turning their attention to the risk-off flows spurred by North Korea’s provocations, which is dampening gains for higher-yielders like the Loonie.

Besides, Forex Ninja mentioned in his CFTC COT Update that Loonie long position ticked higher again, possibly hitting extremes and signaling that a reversal is in order.

I’m gonna keep tabs on the upcoming U.S. CPI figures first to see if I should hop in a long position, as downbeat results could lead to a break lower while an upside surprise could reassure Fed policymakers that the previous dip was just temporary. If so, September hike odds could increase, along with expectations of a balance sheet runoff then.

I’m looking to go long around the 1.2650-1.2800 area with a wide stop below 1.2400 and a target around the next area of interest at 1.3000. I’ll keep y’all posted when I do hop in!

Cheers,

Happy

See also: Q2 2017 Trading Performance Review

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