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Short-term Trading Idea FX USD/CAD – Bear Speculation : Possibility of a Weekly Double Top

Trading opportunities on currency pair: on the weekly time frame a double top is forming. Weak NFP indicators became the signal for traders that the US Fed is not going to increase the base rate any time soon. Probably the limit zone of 1.2390 – 1.2350 won’t last. The target is 1.2012 (50% from a growth of 1.1190 to 1.2834). The rate’s return to 1.2650 will cancel out this scenario.

The last review I did on the Canadian was on 9th March after the release of the February Non-Farm Payrolls. On 6th March the NFP significantly exceeded its forecast. The USD/CAD rate broke the upper limit of its triangle on the back of that data. Due to this I set two targets, 1.2798 and 1.3022.

After a week the first target was reached. By the second the dollar wasn’t budging. After the US Fed’s J. Hellen gave a speech, the USD/CAD rate returned to the break line at 1.2410. By the end of March the US dollar was trying to get back its losses, but on the back of weak macroeconomic statistics on the US, it returned to 1.2428.

Last Friday the dollar lost its position throughout the market. Easter celebrations in Europe and the US have affected market liquidity and the volatility of currency rates. On Friday the pound broke the trend line right on the hourly. Disappointing American labor market data facilitated a sharp fall in the dollar.                                       

February US non-farm payroll values increased by 126,000, whilst 244,000 was the number expected by the market. January values were once again reassessed downwards from 239,000 to 201,000. March was reassessed from 257,000 to 239,000. The February value was dropped from 295,000 to 267,000. A general review of January and February values were put at a reduction of 69,000. The March unemployment level was unchanged, as expected, at 5.5%. A fall in oil prices caused mass lay-offs in the US oil extraction sector.

The average hourly wage grew by 0.3%; 0.2% forecasted and 0.1% previous. In addition, from February to March, the percentage of the economically active population decreased from 62.8% to 62.7%.

According to the most recent American statistics there’s a high risk that the 1.2351 limit won’t last and so the correctional movement of the dollar will continue. Week NFP values have become the signal for traders that the US Fed is not going to increase the base rate any time soon.

Oil cheapened on Thursday after the announcement of the reaching of an agreement about Iran. However, it’s worth noting that not so much was expected by many experts. This is a positive factor for the Canadian. Brent oil is trading above 55 dollars and WTI around 49.47.

For 2 months the USD/CAD has been fluctuating in a sideways trend with a 5 figure range. The resistance zone has formed between 1.2798 and 1.2834, the limit zone at 1.2390 and 1.2350. On the weekly the peaks 1.2798 and 1.2834 are forming a double top. A strengthening below 1.2350 will suffice and will set the wheels in motion for a realization of this model.

Looking at the current levels, selling the dollar against the trend is risky.  On Monday Europe is celebrating Easter so there’s a thin market. Here you need to wait for a break of 1.2350 and then a rebound to below 1.2350 (the limit should be the resistance) and only then can we try to short the dollar in expecting a three figure correction. The target is 1.2012 (50% from growth of 1.1190 to 1.2834).

A return to 1.2650 will cancel out the scenario of a reduction in the rate. You need to look at the general dynamic of the dollar against the euro, pound, franc and Swiss franc. If it restores itself against the other pairs then get ready for a new maximum.

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