Short Term Chop Sets Up A USDCAD Range For Early Next Week

Why Would EURCHF Hold a Range?   ·         Levels to Watch: -Range Top:       1.2530 (Pivot, Fibs) -Range Bottom: 1.2225 (Trend, Pivot, Fibs)   ·         Volatility for USDCAD has been extraordinarily high over the past 12 hours thanks to the releases of both the US and Canadian employment reports. However, the pair has yet to stray outside of its technical boundaries – a reflection both of the equally news-worthy reports and the general, fundamental link between the two economies. Looking ahead to next week, scheduled event risk is light, but the US stimulus effort may rouse volatility.   ·         Technically, USDCAD has built a very broad range for months; but recently this has turned to congestion with ill-defined boundaries. Recent, chop has developed relatively clear limits near 1.2525 and 1.2225. Resistance is developed through the 61.8% Fib of the Dec 5th to Jan 6th bear wave and support is the 38.2% retracement of the same move.   Suggested Strategy   ·         Long: Half-sized entry orders will be placed at 1.2260 after the weekend confirms a hold.   ·         Stop: An initial stop at 1.2180 is relatively tight for such aimless chop, but decent for the range. To secure profit, move the stop on the second lot to breakeven when the first target hits. ·         Target: The first objective equals risk (80) at 1.2340. The second objective is 1.2420.

Trading Tip – There is a lot of pent up energy behind the currency market with the yen and pound crosses driving significant drives and the many of the majors positioned for trend-defining breakouts. This raises the appeal of USDCAD when searching for range setups as the close fundamental trade links and long-term congestion are marks of a sound congestion play. Considering the US is Canada’s biggest trade partner and vice versa, these two countries have a tight fundamental link which has had an indelible influence on the exchange rate. At the same time, this anchor on price action has also left USDCAD with the habit of ignoring significant technical levels. Moderate levels of resistance and support are often run with ease. Therefore, our strategy needs to take a cautious approach. Entry should be held off until after the weekend to confirm there are no breaks before the liquidity vanishes and we are stuck in a bad position. Confirmation that support is holding up is essential come the Monday open for the Far East.  Should we be entered, our stop is held very close considering the frequency of failed technicals we have seen from this pair; but if our range fails, we wouldn’t want to be in an aimless trade. There is a smattering of notable indicators next week and this range is very narrow; so we will cancel all open orders by Tuesday.

Event Risk US And Canada

US – Over the past two weeks, the US docket has set a severe pace for its recession, showed the Fed has few options left to stabilize the economy and employment data showed the worst rate of job losses for the world’s largest economy on record. Through all of this, however, the dollar has not seen a significant shift in trend. With fundamentals fully priced in and the sense of risk maintaining the currency’s safe haven status, there are contradicting influences balancing the dollar’s demand. Looking ahead to next week though, this equilibrium may be tested. The US senate is expected to come to a decision on the President’s estimated $900 billion financial stimulus plan, which could fundamentally shift risk considerations. The economic docket could alter boost activity as well. Trade, retail sales and consumer confidence numbers will refine expectations for first quarter growth – the next major barometer for relative strength.

Canada – The Canadian dollar was shaken up today after Statistics Canada reported a record 129,000 jobs lost through January. This will likely lead the consumer to take on the role as the biggest fundamental weight on growth going forward; which could impart the slump with enough momentum to undo expectations for a relatively quick recovery on improved exports and credit conditions. This will further unnerve long-term bulls and make the currency that much more sensitive to disparaging economic data. From the docket, there are a few indicators that can stir this kind of interest. Housing starts will offer another gauge of consumer wealth – now a major component of growth. Also interesting will be the physical trade and capital flow balance reports. Are Canada’s markets and economy really that strong? These indicators will offer a benchmark. 

Data for February 9 – February 16			Data for February 9 – February 16
Date	US Economic Data		Date	Canadian Economic Data
Feb 11	Bloomberg Global Confidence (FEB)		Feb 9	Housing Starts (JAN)
Feb 11	Trade balance (DEC)		Feb 11	International Merchandise Trade (DEC)
Dec 12	Advanced Retail Sales (JAN)		Feb 16	Int’l Securities Transactions (DEC)
Feb 13	U. Of Michigan Confidence (FEB P)