USD CAD Short Term Outlook With DOW as Backdrop: 13th February 2012

USD CAD Short Term Outlook With DOW as Backdrop: 13th February 2012

I’ve just entered a spur of the moment USD:CAD long at 0.9993 based on some of the following parameters.

Firstly, although not a major factor in this decision, this long position has the potential to act as a hedge against my existing GBP:CAD short position (showing a 10 pip profit as I type). Ultimately the real decision for the basis of this trade was made upon some quite simple technicals.

The daily chart doesn’t look very exciting at all, however MACD has crossed positively suggesting at worst we’ll see some kind of retrace against the¬†predominantly¬†bearish trend whilst price is statistically likely to make an attempt to re-enter the failed trend line. The best feature of this chart for me is the clear sign that a daily close below 0.9979 support area implies the trade is wrong, and that allows for an incredibly tight stop loss.

The hourly chart is the more interesting time frame where at the time of entry MACD is attempting to cross positively whilst support has been found upon the green 200 MA. 1 or 2 hourly closes below this 200 MA will probably have me heading towards the exit button whilst allowing the potential loss on the trade to be minimal:

Furthermore, the hourly chart has also broken out of it’s falling resisting trend line whilst finding support on the subsequent back test:

All in all this is quite an aggressive trade but I’m happy being aggressive when stops can be run so tightly.

Looking further afield for potential confirmation of the trade I ran my ruler over the Indices, which tend to move in the opposite direction to USD:CAD, for possible bearish signs, and heres what I stumbled upon.

DOW 30 minute chart shows a rising wedge that was broken on Friday. Despite positive news and a huge futures Gap up, DOW failed to put on a decent rally today, furthermore on close inspection you can see that intraday price action produced a lower low and a lower high. In the very short term at least, this adds further confirmation that the aggressive USD:CAD long is a risk worth taking. I think it also worth noting how the point at which the rising wedge broke down has become an area of resistance against today’s price action. Future areas of Support and resistance can often be predicted by such movements even if it’s only on an intraday basis:

In conclusion it’s clear that this is a trade against the current trend, but when risk can be kept to a minimum as it can in this example, risks are there to be taken because in the long run, the string of tiny losses on such trades will usually be covered by the large gains on the odd example that plays out perfectly.

2 Comments
  • GBP:CHF Long Re-Entered And Mid Week Update
    Posted at 23:35h, 15 February

    […] trading opportunities and my open swing positions remain as reflected by the trades log. As a recap:USD:CAD – I remain long from 0.9993 on the basis of daily candle closes above 0.9979USD:JPY – I remain long […]

  • This Week's Trading Review And Thought's For Next Week; 18th February 2012
    Posted at 21:26h, 18 February

    […] out I was right to be conservative in my trading positions during this time, though I still hold USD:CAD which is now below my original stop loss area and I’ll explain more on my thinking behind […]