Decided to close my USD/CAD short as I think sentiment has shifted on the Greenback after yesterday’s Fed meeting.
Channel Break Lower in USD/CAD?
In case you missed it, the Fed cut interest rates yesterday by 25 basis points to <2.25% and moved the end of the balance sheet reduction process to August from September. But instead of a dollar selloff, we got a dollar rally as the market didn’t get a guarantee of further rate cuts beyond this meeting. This was somewhat expected if you read Forex Gump’s FOMC event preview, so it shouldn’t be a surprise that the Greenback bounced on the event.
And after a little bit of thought, I decided I didn’t want to be short the U.S. dollar for now, even against the Loonie since Canada seems to be resilient in this current environment of high geopolitical uncertainties (Canada manufacturing PMI hits four-month high in July). Given that the Dollar is now the “high-yielder” among the major currencies and the U.S.’ economic health is relatively good compared to the rest of the major economies, I think there will be more buyers than sellers for now until the Fed does signal more cuts ahead. With that, I closed my USD/CAD short position down this morning at market (1.3247) for a small loss:
Total: -88 pips avg. / -0.416% loss on 1.00% original risk
Technically, the pair is still in a downtrend, but I base my trades more off of fundamental themes so I see this as a good adjustment. Only time will tell, but if the pair does shift back to the downside, I won’t hesitate to re-enter short if more U.S. rate cuts are back on the table and we see a combination of rising oil prices and sustained Canadian economic strength.
That’s it for now. What do you think of this adjustment or USD/CAD in general? Would love to hear your thoughts so please don’t hesitate to share in the comments section below!
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