USD/CAD Traders: Read This
After a pretty wild day on Monday, the markets have settled down coming in to
Tuesday. That presents a very interesting set of circumstances. In a
great many forex pairs there is a building set-up taking place; the USD/CAD
looks like it has potential. The
volatility has stayed low on an hourly basis for long enough to get the
Bollinger Bands pretty narrow almost across the board. We’re talking the
majors and the crosses. That is a pretty good indication that we are going
to see some worthwhile price movements in the short-term time frame.
Perhaps the most interesting set-up of them all is USD/CAD. In this
pair we are looking at a market which saw the Bollinger Bands get quite narrow,
and then a range expansion begin to the upside. That rally, however, has
failed. As you can see on the hourly chart below, the attempt to take out
the recent highs was unsuccessful, at least so far. That presents us with a very
nice possible short trade.
To explain why that is we need to take a look at the daily chart for a
longer-term perspective. As you can see in the graph below, USD/CAD has
been in a sustained down trend since late March/early April. A bottom was
put in last week, at least temporarily. The market has rallied up from the
lows around 1.1000, but so far cannot get beyond the 20-day average (the middle
band on the chart).
In candlestick terms we are seeing what would be called a shooting star for
today’s action formed by a failed rally. That is generally a bearish
indication. With this set-up we can look for a possible short-term short
in expectation of a move down to at least retest the lows from last week.
Referring back to the 1-hour chart, if the market breaks down below the
bottom of the recent trading range (about 1.1115), that should be a sign that
the bears are taking over once more. In that case it would be somewhat
surprising if we didn’t see at least a 100 pip fall in USD/CAD.
John Forman is the author of Amazon Top Seller
The Essentials of Trading
and a near 20-year veteran of trading and investing across a wide array of
markets and instruments. His analysis and market comments have been found in
the financial news media across the world and he has published dozens of
magazine articles on trading methodology and analytic techniques. To learn more
about John’s research and trading activities, visit the
Anduril Analytics website.