With volatility creeping lower every day, decided to step out to the longer time frames and found the uptrend in USD/CAD very interesting.
Long-term Uptrend in USD/CAD
On the daily time frame above, we can see that USD/CAD has been steadily rising over the past few months after its big fall from just under 1.73000 to 1.3100. And longer-term, this pair has been in a strong uptrend going all the way back to 2012 where it traded below parity for bit. So, I’m playing the longer-term trend higher, not only because of price action, but also on the idea on economic and monetary policy divergence.
In Canada, we recently heard from the Bank of Canada Governor Poloz say that it was going through rough patch that warranted stimulative monetary policy. I think we’ll get the same rhetoric next week at the BOC’s latest monetary policy meeting, especially given that recent Canadian economic updates have been less-than-favorable with the gloomy business outlook, weakening housing market, and inflation conditions below the BOC’s two percent target.
And in the U.S., economic data has been mixed but arguably net positive with employment conditions, manufacturing activity & retail sales recently coming better-than-expected. While it’s likely the Fed will not hop back on the tightening train any time soon, they aren’t ready to cut rates either as re-iterated by Fed member Evans this week.
So, with the fundies lining up with the technical uptrend, I’m looking at buying USD/CAD for a longer-term position to hold into May if the market drivers support the long bias. I’m looking for an upside break of the consolidation pattern on the daily chart above, with a wide stop of over one weekly ATR to give the trade room to breathe. My initial target will be the December high where I will re-assess and adjust if necessary. Here’s what I’m doing:
Long full position of USD/CAD at 1.3500, max stop at 1.3300, initial target at 1.3700
I’ll be risking only 1.00% of my account and my potential return-on-risk to start is about 1:1. I’ll look to add further to the position or adjust quickly (i.e., cancel orders, close trade, reverse trade) depending on next week’s BOC meeting if I’m in the trade, and if I’m not in the trade, I’ll look into seeing whether or not cutting the orders or adjust my entry makes sense.
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.
This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.