Conditions are still very risky for trying to spot range trades. High volatility and a lack of overall direction plagues not only currencies; but most other asset classes as well. Avoiding breakouts and holding to the best congestion patterns in the market, USDCAD can offer a strong range setup as long as the proper precautions are taken.
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[B]Why Would USDCAD Hold a Range?[/B]
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 1.3000 (Triple Top)[/B]
[B]-Range Bottom: 1.2200 (Trend, Fib Swing Low)[/B]
· Like all other dollar-based majors, USDCAD is exposed to shifts in broad market sentiment. The dollar’s status as one of the market’s prominent safe-havens is under pressure as investors are less concerned about liquidity but are nonetheless fearful of the future for financial markets. This has a unique and uncertain impact on USDCAD. On a timelier basis, we have significant event risk from the Canadian docket over the coming week.
[B][/B]
· Price action behind USDCAD is relatively dangerous. While the dominant wedge formation - that has guided price action since October - is still intact, there is a notable head-and-shoulders formation to contend with. How the market responds to the confluence of support in the 50% Fib and rising trend around 1.22 will decide the trend.
[B][I]Suggested Strategy[/I][/B]
[B][/B]
· [B][U]Short[/U][/B][B]: Half sized entry orders will be placed at 1.2285 after the weekend.[/B]
· [B][U]Stop[/U][/B][B]: Our initial stop will be set well below the trendline and just below the March low at 1.2150. To secure profit, move the stop on the second lot to breakeven when the first target hits.[/B]
· [B][U]Target[/U][/B][B]: The first objective equals risk (135) at 1.2420 while the second[/B][B] target will be 1.2555. [/B]
Trading Tip[/B] – Conditions are still very risky for trying to spot range trades. High volatility and a lack of overall direction plagues not only currencies; but most other asset classes as well. Avoiding breakouts and holding to the best congestion patterns in the market, USDCAD can offer a strong range setup as long as the proper precautions are taken. Like most of the majors, this pair is still feeling out the market’s sense of risk and how the dollar factors in as a real safe haven. Historically USDCAD is well buffered from these broader concerns due to the interdependency between the two countries; but this does not prevent high volatility into false breakouts. What’s more, there is substantial event risk on the Canadian docket that could cause trouble (the US calendar on the other hand is unusually light). We will rely heavily on the prominence and consistency of the wedge formation that has been in place since October. Our entry is set above the rising trendline in this formation; and the stop is set well below (to cover the last week’s swing low in the event of a false breakout). However, this allows for considerable, notional risk; so we will only trade on half size or less. As an added level of caution, we will hold off until liquidity fills out on Monday to place our orders to ensure there is no major shock over the weekend and see how the market is trading at the beginning of the new week. We will cancel all open orders by Wednesday or should spot hit 1.2450 first.
[B]Event Risk for US and Canada[/B]
[B]US[/B] – The past week has been a fundamentally-loaded one for the US dollar with a prominent list of top tier economic data headed by a G20 summit and non-farm payroll report. And, though we are heading into a comparatively slow week for scheduled event risk; there will no doubt be considerable fundamental back-and-forth for the greenback. A carry over from the economic gathering this past Thursday, traders will continue the debate over the dollar’s role as a safe haven. The statement that was issued after the one-day gathering generated confidence with sweeping policy objectives; but the means and methods for accomplishing these tasks was opaque. This leaves the market uncertain of the level of risk in the financial market and the whether the dollar (best known for liquidity) is the optimal currency for safety.
[B]Canada[/B] – Falling to the wayside over the past few weeks for fundamental exploits, the Canadian dollar will have a well-stocked economic docket over the next series of active trading days. Going forward, traders are likely to show a greater interest in the performance of the Canadian economy as it is considered one of the strongest in a world suffering from recession. Confirmation of this bias could finally put the loonie back on pace. Key indicators to watch through the week include Monday’s Ivey business activity report, Wednesday’s housing construction report, and of course Friday’s employment change figure all for March.
[B]Data for April 6 – April 13[/B]
[B][/B]
[B]Data for April 6 – April 13[/B]
[B]Date (GMT)[/B]
[B]US Economic Data[/B]
[B][/B]
[B]Date (GMT)[/B]
[B]Canadian Economic Data[/B]
Apr 7
Consumer Credit (FEB)
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Apr 6
Ivey PMI (MAR)
Apr 9
Trade Balance (FEB)
[B][/B]
Apr 8
Housing Starts (MAR)
Apr 9
ICSC Chain Store Sales (MAR)
[B][/B]
Apr 9
Net Change in Employment (MAR)
[B][/B]
Apr 13
Business Outlook Future Sales (1Q)
[I]Questions? Comments? You can send them to John at <[email protected]>.[/I]