On April 23 I published an article looking at the consolidation in the USDCAD forex pair, indicating a drop below 1.10 was a level to watch as a potential catalyst for a bigger move. On April 29 we got that breakout move, and the pair is currently trading down to 1.0963. The low of the session is 1.0943.
The strong drop has been followed by an afternoon consolidation. If the price breaks below the low of the consolidation at 1.0943 expect a further decline; there is potential support at the April 9 low near 1.09.
After a sharp decline like that, out of a very tight range for the last several days, we may also see a bounce up toward the former range. This presents the best trading opportunity. If the price bounces a short trade can be initiated between 1.0990 and 1.1020 with a stop above 1.1050. The target for the trade is near 1.0915.
Given the overall downtrend the price could continue to drop through the April 9 1.0858 low. In that case, taking multiple lots on the entry will allow for exiting part of the position at the target, and holding the rest of the position for a potentially larger gain. An expanding triangle going back to February places the longer-term target for a down move near 1.08.
If the price moves all the way back to 1.1050 the USDCAD forex pair is in no-man's-land, and therefore doesn't present particularly alluring trade opportunities until it picks a direction once again.
The USDCAD along with several other forex pairs broke out of a consolidations over the last 24-hours. The free Euro Eclipse forex webinar discusses opportunities and an action plan for taking advantage of significant developing trades in the forex market.
Cory Mitchell, CMT
*Disclaimer: I am currently short in the USDCAD, and will likely be looking to add to the short position based on my comments above. Forex involves substantial risk of loss. Therefore, only trade with funds you can afford to lose. This is not investment advice, and is for informational purposes only.