The Bank of Canada’s latest monetary policy statement should light the Loonie on fire this week, so here are a couple of strong longer-term setups to play what ever your bias may be.
For you Loonie bears out there, CAD/JPY is one to watch, especially if your outlook on risk sentiment is more negative than positive, and/or you’re bearish on oil. On the daily chart above, the pair is retesting the top of a what seems to be a descending channel in the works, and with a doji candle forming as stochastic is signaling over bought conditions, the odds that the pair may reverse soon are pretty high from a technical perspective.
With a weekly ATR of around 140 pips and the bottom of the channel roughly 300 pips away at the major psychological level of 80.00, the potential risk-to-reward is attractive on a market that is slowly trending lower.
For you Loonie bulls, GBP/CAD is a strong mover that just broke a major support area around 1.6600 – 1.6700. This is after a big time move lower from the peak highs around 1.7700, so with that kind of move, Stochastic is already signaling oversold conditions and a bullish hammer forming, a bounce may be in the cards short-term.
If you want to get long the Canadian dollar, a bounce and retest of the 1.6600 – 1.6700 should be on the watchlist, and given that the weekly average true range is around 270 – 300 pips, it likely wouldn’t take much to get the pair up to that broken support area within just a few days. If we do see a move lower, the likely next support area will come around 1.5900 – 1.6000, which would provide an attractive return-on-risk scenario if using the weekly ATR as your stoploss guide.
Last but not least, the British pound is likely to see some action as Brexit developments and updates don’t seem to ever end, and the U.K. has economic events of its own that would likely move Sterling short-term.
And if you’re long biased on the pair, GBP/JPY on the daily chart is a good setup to watch as the market is retesting the January spike lower, an area that brought in buyers quickly that eventually saw a 13% move higher trough-to-peak in the following months.
Right now, we’re seeing the current downtrend slow down, and a little bit of bullish divergence between Stochastic, with price action with higher ‘lows’ in the former, while the price has made lower ‘lows.’ This may be getting the attention of technical traders at the moment, so look out for further bullish candles and/or a break of the falling ‘highs’ around 137.00 – 138.00 before considering a long position.