An interesting trade setup in USDCAD, which it appears must make a directional soon as it trades close to the 200-day moving average.
Looking away from the fundamental situation of late – which it seems we can largely disregard anyway as everything seems to be a guessing game on the “when and how much” of the next round of central bank gravy – it’s often useful to focus purely on the technical situation. And on that note, the setup in USDCAD is rather intriguing here as the pair must decide very soon whether the big rally back in May will find confirmation or whether the interminable range will continue for now.
Chart: USDCAD
Tactically, there are two interesting things going on. First is the clear importance of the 200-day moving average (currently just above 1.0100), which held on its first test a few weeks ago, and then briefly failed to hold earlier this month, before the break was rejected. The subsequent sharp rally saw the pair well back through resistance, a wave that suggests the focus should be higher until proven otherwise.
Secondly, as the pair has been in a grinding consolidation lower since early June, the stance for bulls should be one of looking for deep retracements to buy – with the 0.618 Fibo the preferred Fibo in focus here as we look for a tactical turnaround. That level comes in at about 1.0128, some 10 pips below the lows thus far on the day. The 200-day moving average can be used as the rejection point for the upside view, as another break of this level suggests we end up with a full test of parity rather than a continued pivot higher. Further confirmation of the upside view would arrive with a move back above the 1.0230/50 area. In other words, if we hit the 0.618 retracement area, it’s a pretty cheap place for bulls to test the waters.
John J Hardy,
SAXO BANK