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Loonie bulls have been on a tear since last Friday, pushing AUD/CAD down to retest a strong support level. Time for fresh monthly lows to be made?

AUD/CAD Short on Selling Momentum

AUD/CAD 4-Hour
AUD/CAD 4-Hour

On Monday, we got hawkish vibes from BOC Governing Council Member Carolyn Wilkins, sending the Loonie higher across the board to start the week. Her positive sentiment on Canada’s first quarter economic data seems to have been a surprise to forex traders as the Loonie was bid up quite quickly against the rest of the major currencies.

This might be the catalyst for a potential reversal of sentiment on the Loonie, which has been under steady pressure for a while. There is a possible reversal signal from the Commitment of Traders data showing another week of net short contracts at around -94.5K, an improvement from the previous week and stabilizing at extreme short levels. If net short positions continue to decline, Loonie bulls could take that as a green light to hop in.

In terms of price action, for the third time this year, an attempt by AUD/CAD bulls to break past the 1.0200 – 1.0300 area has failed and now we’re seeing a strong support area around parity (1.0000) being tested. With strong downside momentum and potentially oversold conditions in the futures market, I’m gonna play this pair to the short side.

But after an already strong run lower this week, I’m waiting for a bounce up to parity before hopping in. My stop will be the weekly ATR and my initial target will be an previous interest as strong strong support throughout 2016. Here’s what I’m doing:

Short half position AUD/CAD at 1.000, max stop loss at 1.0180, initial target at .9800 for an initial 1.11:1 return-on-risk potential.

I’ll be risking only 0.5% of my account on this position and I’ll look to re-assess to potentially reduce my risk and maximize my gain if the market still has strong downward momentum on a break of that .9800 handle. My next target from there would ultimately be the 2015 low around .9200 for very juicy potential return-on-risk.

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.

Risk Disclosure
Pipcrawler’s Q1 2017 Blog Trading Performance

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.