After a long, slow grind higher, is the trend finally changing in USD/CAD after this simple technical breakdown?
Channel Break Lower in USD/CAD?
On the four hour chart above we can see a shift in USD/CAD sentiment as it broke a closely followed channel that goes back to the beginning of 2019. It’s mainly due to the recent sentiment shift in the U.S. dollar as traders speculate the Federal Reserve will cut interest rates in 2019 as the case for accommodation has strengthened given recent economic data and geopolitical risks. And it’s also possible that oil’s recent bounce in June may be a contributor to the Loonie’s strength, a move that could be attributed to rising tensions between U.S. and Iran. Recent Canadian inflation updates were a big positive surprise for the Loonie as well as it lowers the probability for the Bank of Canada to be more accommodative at this time.
These are themes that aren’t likely to go away any time soon, so it is possible this break down of the channel could continue. But looking forward, the economic calendar is stacked for both currencies for the next few weeks as we head into the new month, so while I can’t be too sure on direction, I know that I can count on volatility to stay bid in the short-term.
For now, I’m sticking with the bigger picture theme of playing the Fed rate cut speculation against the low probability of BOC cuts at the moment and look for a short play. But given the strong recent move lower then consolidation–and the busy calendar ahead for both currencies–I’m going to be prudent with my entry by setting my orders for a retest first of the bottom of the broken channel. My stop will be around the weekly ATR, which puts it above the recent swing high, and my initial target will be one ATR for now, but subject to change after we get the latest data. Here’s what I’m doing:
Short half position USD/CAD at 1.3250, max stop at 1.3420, initial target at 1.3080
I’ll be risking only 0.50% of my account to start, and my potential return-on-risk is about 1:1 for now. I’ll look to add further to the position or adjust quickly (i.e., cancel orders, close trade, reverse trade) depending on the latest data and geopolitical developments and how traders react to them.
Stay tuned for updates 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.
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