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USD/CAD is back testing a major resistance area, so is it another opportunity for the short sellers?

Top of Range to Hold on USD/CAD?

USD/CAD Daily Forex Chart
USD/CAD Daily Forex Chart

On the daily chart above of USD/CAD, we can see the pair has been in rally mode since the end of October where it bottomed out around 1.3050, likely on a combination of recent rising tensions on the global trade front (pushing risk assets and oil prices lower at times) and rising odds of a potential rate cut from the BOC after their last monetary policy meeting. The pair seems to now be topping out around a previous major resistance area between 1.3300 – 1.3350, which brings on the question of whether sellers will take back control or not?

With positive developments now coming from the global trade front (Oil gains as optimism returns to U.S.-China trade talks), we could see a return to positive risk sentiment very soon. But looking forward, there are risks beyond the U.S.-China trade story to mindful of.  Most notable is the upcoming monetary policy meeting and statement from the Bank of Canada, followed by the employment updates from both the U.S. and Canada next week. For me we’ve seen net better-than-expected data from both countries in recent weeks, so I’m in the camp that the BOC will likely not cut interest rates, especially given their not-so-dovish outlook if the global economy weakens.  And broad risk sentiment will continue to lean positive, especially if the upcoming employment and business sentiment data does not show weakness.

With this outlook, I’m going to take a short USD/CAD position at current levels, and with top tier events on the way, I’m going to be conservative with my strategy by using a wide stop and look to take profits quickly, unless the data shows I need to get really bullish on CAD. Here’s what I’m doing:

Short full position USD/CAD at market (1.3270), max stop at 1.3430 for 1.00% risk, max target at 1.3055

I’ll be risking 1.00% of my account for a max 1.34:1 potential return-on-risk.  I may close down the position early to limit my max loss if the BOC meeting and/or the upcoming top tier economic data from the U.S. and Canada invalidate my fundamental bias.

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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