Taking another shot at the downtrend in USD/CAD after the pair bounces and resistance forms.
USD/CAD Fib Short Play
Back in December, I took a shot on a short position in USD/CAD to play my fundamental bias favoring the Loonie over the Greenback at the top of a well defined range. It worked out well as I got a 67% return-on-risk, but I probably closed the trade down too early as the pair made a move lower by around another 200 pips since I closed that position.
Well, my fundamental bias hasn’t changed, especially after Friday’s employment data from both the U.S. and Canada, with the former disappointing relative to expectations while the latter turned in some positive reads to cap off a strong year for the Canadian economy. So, I’m looking to short USD/CAD once again, and after bottoming out around 1.2950 at the beginning of the year, the pair may be setting up another opportunity to go short at a better price.
On the four hour chart above, we can see that the recent bounce has stalled around the Fibonacci retracement area, which also happens to be the falling ‘highs’ pattern marked with the descending trendline. And with the stochastic indicator coming out of overbought territory, this could be the signal bears may take to getting more aggressive in a short play, especially if global risk sentiment continues to remain positive, and/or the upcoming central bank events in January from both the U.S. and Canada turn out favorable for USD/CAD bears.
With those arguments, I’ve decided to short USD/CAD at market with a wide stop of over one weekly ATR. My max target will be the next major swing low that was see way back in 2018, but well within two weekly ATR away for a hold of a few weeks to a month. Here’s what I’m doing:
Short full position USD/CAD at market (1.3059), max stop at 1.3210 with 1.00% max risk, max target at 1.2805
I’ll be risking 1.00% of my account to start for a 1.68:1 return-on-risk. I will look to adjust the position after reviewing what we get from the upcoming Bank of Canada and Federal Reserve meetings if necessary.
That’s it for now. 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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