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USD/CAD price action looks ripe for a potential uptrend or breakout setup this week, and the volatility may come with the upcoming U.S. employment update.

Short-term Setup on USD/CAD

USD/CAD 1-Hour Forex Chart
USD/CAD 1-Hour Forex Chart

Coming later this week is the the monthly U.S. employment update, and it’s one of the top-tier events forex traders love to watch and trade both long and short-term ideas.

This week, I’m looking at it from a short-term perspective, hoping to jump in at a decent price before the event with expectations of a Dollar rally if the data continues to show improvement.

And I think the odds are pretty decent of continued improvement based on the latest U.S. PMI data from IHS Markit, indicating that both the manufacturing and services sectors saw job growth, albeit at a slower pace but growth nonetheless. And the last five months were all better-than-expected, so the odds are currently in favor of Dollar bulls at the moment.

With that expectation, I’m looking to get long some Greenbacks for a small long position, not only to play the event but as a possible starter position for a longer-term swing play if the situation develops in favor of the U.S. dollar.

I’m doing so against the Canadian dollar, which doesn’t have any scheduled catalysts from Canada to influence USD/CAD, and may be influenced by oil prices (oil is Canada’s top export) which seem to be rolling over as concerns grow over the global recovery from the pandemic.

With that said, I’m looking to enter with a small position if the currency pair pulls back to the most recent major psychological level before the event. 1.3300 served as a strong support level last week, and if retested could do so once again.

The odds are good of support if the global risk environment remains broadly negative, and the Stochastic may draw in more price action players to play 1.3300 as support as well.

My stop will be one and half times the daily ATR below my entry level, and my initial target will be two times my risk.  Here’s what I’m going to do.

Long half position USD/CAD at 1.3305, max stop at 1.3185 with 0.50% risk, max target at 1.3545

I’ll be risking only 0.50% of my account with a 2:1 potential R:R at my max target. But depending on the data and shifts in market themes, I may add to this position if the odds rise of continued favor of the Greenback over the Loonie (i.e., weaker oil prices, rising risk-off sentiment, no further U.S. stimulus, etc.).

If the data severely disappoints and USD sells off, I’ll close down any orders or open positions immediately. I may even consider a potential short position on a downside break of the most recent support around 1.3350, if the data is truly terrible.

And if my trade doesn’t trigger by the close of Friday, I’ll close my position and re-assess the pair over the weekend.

That’s it for now, stay tuned for updates / adjustments, 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.

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.