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USD/CAD Offers Short Scalp Targets on Dollar Correction

USD/CAD Offers Short Scalp Targets on Dollar Correction

2011-09-13 19:13:00
Michael Boutros, Technical Strategist
Share:
USDCAD_Offers_Short_Scalp_Targets_on_Dollar_Correction_body_Picture_2.png, USD/CAD Offers Short Scalp Targets on Dollar Correction

A daily chart shows clear RSI divergence after the pair tested upper-bound trendline resistance of the long-term descending channel dating back to May 2010. A downward sloping RSI suggests further downside moves with a dip below the 50-mark which has held since early August. The recent surge in the greenback is likely to taper off in the coming sessions after the Dow Jones FXCM Dollar Index (Ticker USDOLLAR) rebounded off of the key 38.2% Fibonacci resistance today. Stronger crude prices also support our bias with NYMEX crude advancing more than 2% in New York. Accordingly our bias on this scalp will be weighted to the downside noting that the 20-day moving average at 0.9857 could provide some interim support before continuing down through our scalp levels.

USDCAD_Offers_Short_Scalp_Targets_on_Dollar_Correction_body_Picture_3.png, USD/CAD Offers Short Scalp Targets on Dollar Correction

A 30min chart shows the pair breaking below the 38.2% Fibonacci extension taken from the August 9th and September 12th crests at 0.9915early in North American trade. Preferred short entry targets rest here with subsequent ceilings seen at 0.9940 and the 23.6% extension at 0.9960. Profit targets are held at the 61.8% extension at 0.9850 backed by 0.9830, and the 76.4% extension at 0.9809.

Key Thresholds

With a 1-hour average true range of 24.64 profit targets on said scalp should be between 18-23 pips depending on entry. We reckon a break above 0.9980 negates the bias with such a scenario eyeing topside targets at parity and 1.0020.

Note the scalp will not be active until a confirmed break below the 0.9880 or a rebound off 0.9915.Once the scalp is active the levels will remain in play until such time when either of the topside/bottom limit targets are compromised.

Entry/Exit Targets

Timeframe

Level

Resistance 1 Target

30min

0.9915

Resistance 2 Target

30min

0.9940

Resistance 3 Target

30min

0.9960

Topside Limit

30min

0.9980

Topside Limit Break-Target

30min

1.0020

Support 1 Target

30min

0.9850

Support 2 Target

30min

0.9830

Support 3 Target

30min

0.9809

Bottom Limit

30min

0.9780

Bottom Limit Break-Target

30min

0.9750

Reference Values

Indicator

Timeframe

Level

50-SMA

Daily

0.9728

100-SMA

Daily

0.9715

200-SMA

Daily

0.9780

RSI

Daily

54.06

Average True Range (14)

1hour

24.64

Related Economic Data Releases

Event risk on said scalp rests primarily with the greenback, highlighted by the August PPI, advanced retail sales, and business inventory reports on tap for tomorrow. Consensus estimates call for producer prices and retail sales to soften last month while business inventories are expected to climb by 0.5% for the month of July. With investor confidence remaining extremely fragile after Friday’s rapid sell-off, a weaker than expected print on tomorrow’s data risks upsetting our bias as traders once again flock into the safety of the dollar. We will continue to closely monitor the dollar index for a topside break of the key 38.2% Fibonacci extension at 9745 as a breach of this level is likely to see the USD/CAD pair higher in the interim.

Upcoming Events

Country

Date

GMT

Importance

Release

Expected

Prior

CAD

9/14

12:00

LOW

Capacity Utilization Rate (2Q)

78.0%

79.0%

US

9/14

12:30

LOW

Producer Price Index (MoM) (AUG)

0.0%

0.2%

US

9/14

12:30

MEDIUM

Producer Price Index (YoY) (AUG)

6.5%

7.2%

US

9/14

12:30

LOW

Producer Price Index Ex Food & Energy (MoM) (AUG)

0.2%

0.4%

US

9/14

12:30

MEDIUM

Producer Price Index Ex Food & Energy (YoY) (AUG)

2.6%

2.5%

US

9/14

12:30

HIGH

Advance Retail Sales (AUG)

0.2%

0.5%

US

9/14

12:30

MEDIUM

Retail Sales Less Autos (AUG)

0.2%

0.5%

US

9/14

12:30

MEDIUM

Retail Sales Less Auto & Gas (AUG)

0.3%

0.3%

US

9/14

14:00

MEDIUM

Business Inventories (JUL)

0.5%

0.3%

Written by Michael Boutros, Currency Analyst for DailyFX.com

To contact the author of this report or subscribe to their daily analysis, please send inquiries to:mboutros@dailyfx.com

You can also follow Michael on Twitter @MBForexfor updates on this scalp and other trades.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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