On its 1-hour time frame, USDCAD is moving inside a descending channel, with parallel trend lines connecting lower highs and lower lows. The pair is currently testing the channel support near the 1.1000 major psychological level.
A bounce could take place if Canadian data comes in weak while US data turn out strong. Initial jobless claims and a few Fed officials’ speeches are lined up in the New York session, along with the release of Canada’s building permits and Ivey PMI. The building permits report is slated to show a 1.9% rebound after the previous 4.1% tumble but another decline might lead to massive Loonie selling.
USDCAD Day Trade Setup
Going long at the bottom of the channel or catching the bounce if the data sparks a strong rally for the pair could be a possible way to enter the trade. A tight stop below the channel or the 1.1000 major psychological support should give the long position enough leeway for volatility.
Aiming for the top of the channel near 1.1100 seems like a reasonable target for a day trade. To manage exposure for the rest of the US session, adjusting the stop loss to entry once price moves halfway through the channel could reduce risk.
Take note that oil prices have been retreating, leading to more weakness for the positively-correlated Canadian dollar, thanks to the improving situation in Ukraine. The tension appears to have subsided for now, as Putin recently withdrew Russian troops from conducting military exercises along the border.
On the other hand, a return of risk aversion sparked by uncertainty in the markets could lead to a strong break below the channel support. This could get enough follow through if Canadian data surprises to the upside. The Ivey PMI is slated to show a small decline, reflecting a slowdown in the manufacturing industry’s expansion, but a considerable improvement might lead to Loonie buying.
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