Cup and Handle on USD.CAD


Monday: US & Canadian holiday
– 1000 USD ISM PMI
– 0830 CAD Trade Balance
– 1000 Bank of Canada Rate Decision
– 0815 ADP Non-Farm Employment Change
– 1000 ISM Non-manufacturing PMI
– 0830 CAD Employment & Unemployment, USD Average Hourly Earnings, Non-farm Employment Change, Unemployment Rate

Pending News: US & Canada NAFTA talks pending resolution

News Sentiment: Neutral. Nothing of consequence over the holiday weekend.

Up Next Week: Federal Reserve Rate Decision

Formation Status: Handle on a monthly cup and handle formation seeking a breakout, due to breakout with a likely Fed hike this month. Currently trading at the upper end of the channel. Possible continuation or reversal. Tighten stops.

Price Action: Sitting at Resistance of 1.3100. Monthly bias is strongly bullish as is the Weekly bias. Daily is neutral. 4HR and 1HR are pausing.

Key Question: If I tighten the stop and get stopped out, will I be able to re-enter at a lower price or will the pair rebound faster than I can get in?

Scenario Plan: NAFTA agreement reached ahead of Wednesday’s BOC meeting, which could enable the BOC to raise rates this week rather than waiting until October, as the market expects. If this happens, the pair could sell off by 100 pips, a 50% retracement of the recent move from the bottom of the channel.

Because the risk of this is limited to Tuesday and Wednesday, I will tighten the stop ahead of the meeting and re-evaluate afterwards.

If NAFTA breaks after the BOC meeting, I expect the USD to appreciate aggressively as one less barrier to a Fed hike is removed.

Action: Tighten stop to below daily and weekly open. A break below the open could send the pair appreciably lower and offer a strong re-entry point ahead of next week’s Fed decision.

Targets: 1.3385, 1.3585, 1.3750
– Update: 1.3385, 1.3690

Update: Tuesday 20180904
– 0930 USD.CAD strength broke resistance at the channel last night and kept going. As of this morning, the pair traded through another level of resistance at 1.3175 and is now hovering just below 1.3200. I stopped into another position at 1.3175 and placed the stop loss at break even for the new position.
– 1030 The pair has broken 1.3200, but not likely to hold it. I expect a retracement in anticipation of tomorrow’s BOC meeting.

Update: Wednesday 20180905
– 0830 Trade Balance and 1000 BoC Rate Decision served as a buying opportunity. I was previously stopped out at breakeven. I entered the same second position at 1.31805 with a GTC stop at 1.31575. So far so good. I expect further consolidation on the Daily with an upward bias towards 1.3290.
– NAFTA update: Now that the BOC decision is behind us, any NAFTA positive news will be bullish as another barrier is removed from Fed decision making. As the trade picture clears and the US economy shows continued strength, I expect a long-term bullish breakout for the USD.

Position Management: I will hold my initial position entered at 1.2950 for the month of September, perhaps longer. Secondary positions will be for trading purposes.

Update: Thursday 20180906
– The pair is forming a high base on the Daily chart with support above 1.3150. The next two targets are 1.3290 and 1.3375. Market sentiment continues to be positive and the opportunity to reverse course on a Wednesday came and went. NAFTA news is still outstanding as well, which is bullish. To that end, I would not be surprised to see the pair trade up to the next target at 1.3290 and possibly beyond it in advance of next week’s Fed decision. Buy the rumor, sell the news. With that said, risk remains for a bearish breakout to the moving average support at 1.3100. To that end, I will maintain the stoploss at 1.3149, just below S1 support, 20 period MA on the 4HR and the psychological level of 1.3150. Risk on this half position is 3%.
– 0815 ADP showed a modest decline in payroll growth. The market shrugged it off with little reaction. 0830 news was inconsequential.
– 1000 ISM and Fed-speak could send the pair into a 4HR correction as the chart is currently in consolidation mode after the run up on Tuesday. It also could send the pair to the next target or continue to consolidate ahead of tomorrow’s employment data. Hold the stoploss.
– 1125 ISM data outperformed and SF Fed President Williams says that the economy has room to grow and that muted inflation data suggests little impetus for faster rate hikes. Clearly the market is not buying it as the USD has broken short-term resistance at 1.3206 and climbing. Stops on all positions moved to break even on the last entry at 1.3149, locking in an account gain.
– 1644 USD rally peaked at R2, 1.3226 before reversing on bearish Fedspeak about inverting the yield curve and Trump talking up a trade revision with Japan after concluding NAFTA talks.

Trade Results: Stoploss at 1.3149 locked in a 199 pip gain from an entry of 1.2950. The re-entry target is set for 1.3101.

First Position
Entry: 1.2950
Exit: 1.3149
Gain / Loss: +199 pips

Second Position
Entry: 1.3180
Exit: 1.3149
Gain / Loss: -31 pips

Weighted Average Result: +180 pips, +32% account gain

Just when the path towards a stronger began to accelerate, President Trump put on the brakes by announcing that Japan was next. That plus Fedspeak and a BOC announcement that a NAFTA deal was “still possible” cast doubt on the deal getting done and caused the reversal. Had this occurred on a Wednesday, I would’ve been prepared to sell at the high. In shortened weeks, I’ll now anticipate reversals in the afternoon on Thursdays.

After Action Review
The decision to raise my stop loss to Daily support appears to be a good one with the 4Hr chart showing more bearish sentiment to 1.3100-1.3050. One should never complain about a 32% gain.

  • Maintain tighter stops on charts that are elevated well above the Daily MA in order to lock in gains.
  • The Administration is working in concert with other officials to actively manage the currency and prevent aggressive breakouts.
  • The good news is that with this in mind, there should be plenty of trade signals based on the daily pivot points.