It looks like the U.S. dollar may see some action this week with the latest U.S employment and business sentiment updates ahead. What are the expectations and will they keep the uptrend in USD/CAD going?
USD/CAD Uptrend Swing Play
There’s not a lot jumping out at me this week with the end of the month fast approaching and little on the economic calendar. But what we do have for potential catalysts are legit movers, most notably the monthly U.S. employment update and the latest business sentiment numbers. We’ve also go Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin before the House Financial Services Committee this week.
Expectations are for the U.S. data to show improvement, likely so due to the the fact that much of the country started re-opening their economies over the past month from pandemic lockdown. So, we could see some love for the Greenback in anticipation to the economic updates.
And if so, I’m looking to jump on that trend using USD/CAD, which has been moving higher all through June since bottoming out at around 1.3350. The Loonie is turning out to be a net under performer among the major currencies lately , likely due to the fading of the “reopening trade”, broadly net negative news from Canada (e.g., Canadian Consumer Price Index (CPI) fell 0.4%, One of U.S.’s big 3 credit agencies downgrades Canada’s credit rating, etc.), and negative commentary from the Bank of Canada (Bank of Canada governor says economic recovery from COVID-19 will be ‘prolonged and bumpy’). I don’t think we’ll get a shift from that standpoint soon, especially if we start seeing lockdown protocols once again.
Looking at the price action, as mentioned above the pair has been in an uptrend since the beginning of June. I’m going to go with that trend, but I look to do so at better prices as it seems we may get a pullback soon. Resistance is forming around the 1.3700 handle, and if the market does retrace, potential buying support could come around the 1.3500 – 1.3550 support area.
That’s where I’ll be placing a buy order for a nibbler position, with a daily ATR stop to take me out if the market doesn’t go my way. My initial target will be the current resistance area around (1.3700), but I’m looking for a bigger potential gain if that area can be broken on positive U.S. catalysts. Here’s what I’m doing:
Long half position USD/CAD at 1.3550, max stop at 1.3460 with 0.50% risk, initial target at 1.3700
I’ll be risking only 0.50% of my account to start, and an initial 1.66:1 potential R:R, but I’m more looking to add to this position if it goes my way and the catalysts/themes support a USD/CAD rally.
If the data and driving themes do not support a potential upside move in USD/CAD, of course, I’ll look to close out quickly to limit my risk. If my orders are not triggered by the end of the week, I will close them before the weekend for no trade.
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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