Going with a Loonie special with a busy week of economic data from Canada and very simple technical setups on CAD/JPY, NZD/CAD & EUR/CAD!
On the four hour chart above, we can see after a strong move by the bears in late July / early August, the pair has remained in a sort of range between 79.00 – 81.00. The top of the range is also the 38% Fibonacci retracement area, another argument for why that area held as resistance and is likely to do so short-term.
And to top it all off, stochastic is signaling potential overbought conditions as the market starts to turn lower, which should turn more heads among forex traders. If you’re a bear on the Loonie this week, this should be at or near the top of your watchlist as the move could pick up steam soon.
For those of you who think this week’s Canadian data will push the Loonie higher, you might want to check out the downtrend in NZD/CAD. Since topping out just under 0.8900 back in the middle of July, it was a smooth move lower until choppiness hit the market at the turn of the month.
Despite the lack of directional bias, the overall trend is still lower, and if you’re looking to short, a retest of the resistance area between 0.8600 to 0.8650 could be retest very soon as we’re now looking at a bounce and an oversold stochastic indicator. If the pair does bounce, look out for the combination of bearish reversal candle patterns and an overbought stochastic before considering a short position to play the trend lower.
Last but not least, let’s check out EUR/CAD if you’re not really sure what your directional bias is on the Canadian dollar. On one hand, if you’re short biased then the resistance at the Fibonacci retracement area is a pretty clear signal the bears are in control of this pair, and this area between the 38% Fibs up to the 61% Fibs should be a part of a scaling in strategy for a short position.
A bullish argument can be made as well as the pair is creating a descending wedge after a very strong move higher. A break above the falling ‘highs’ may be a signal that Loonie bears are back in control and could draw momentum player into a medium-to-longer-term swing position. Which ever direction you pick, there are pretty clear boundaries to define where to exit if you’re wrong: the top and the bottom of the descending wedge.