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USD/CAD Rebound Offers Medium Range Scalp Setup

USD/CAD Rebound Offers Medium Range Scalp Setup

2011-10-17 20:43:00
Michael Boutros, Technical Strategist
Share:
USDCAD_Rebound_Offers_Medium_Range_Scalp_Setup_body_Picture_2.png, USD/CAD Rebound Offers Medium Range Scalp Setup

Last week’s sharp rally in risk slammed the greenback with the USD/CAD plummeting from recent thirteen month highs around 1.0660. The pair found support some 600pips lower just above parity before the greenback mounted its assault today in US trade. We eye the 23.6% Fibonacci extension taken from the September 19th trough and today’s lows as our primary target at 1.0260 which if breached gives the green light for further dollar advances. Note that daily relative strength also looks to rebound off support at the 47-mark, with an upward slope offering further support for our bias.

With the G20 meeting failing to calm investors about the ongoing debt saga in Europe, investors have gone on the defensive with growth backed ‘risk’ currencies like the aussie, the kiwi, and the loonie coming under pressure early in the week. Accordingly our bias on this particular scalp setup will be weighted to the topside as the dollar pares some of the steep declines seen last week. Note that after today’s 1.35% advance, the pair may experience a brief pullback before moving on to higher highs.

USDCAD_Rebound_Offers_Medium_Range_Scalp_Setup_body_Picture_3.png, USD/CAD Rebound Offers Medium Range Scalp Setup

A 30min chart highlights our scalp levels noting interim support at 23.6% Fibonacci extension taken from the September 27th and today’s troughs at 1.0166. Our setup will be triggered with rebound off this level or a clear break above 1.0210 with profit targets eyed at the 38.2% extension at 1.0240, 1.0270, and the 50% extension at the 1.03-figure. A break above this level risks further losses for the loonie with topside targets seen at 1.0330 and the 61.8% Fib extension at 1.0360.

Key Thresholds

With a 1-hour average true range of 27.27 profit targets on said scalp should remain between 21-26 pips depending on entry. We reckon a break below the bottom limit at 1.0045 negates the bias with such a scenario downside targets at the parity and 0.9950.

*Note the scalp will not be active until a confirmed break above 1.0210 or a rebound off 1.0166 with RSI conviction. 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

Significance

Resistance 1 Target

30min

1.0210

Basic Resistance

Resistance 2 Target

30min

1.0240

38.2% Fibonacci Ext

Resistance 3 Target

30min

1.0270

Basic Resistance

Topside Limit

30min

1.0300

50% Fibonacci Ext

Topside Limit Break-Target

30min

1.0330

Basic Resistance

Support 1 Target

30min

1.0168

23.6% Fibonacci Ext

Support 2 Target

30min

1.0140

Basic Support

Support 3 Target

30min

1.0100

Basic Support

Bottom Limit

30min

1.0045

Most Recent Low- 0% Fib

Bottom Limit Break-Target

30min

Parity

Parity

Reference Values

Indicator

Timeframe

Level

50-SMA

Daily

1.0025

100-SMA

Daily

0.9848

200-SMA

Daily

0.9800

RSI

Daily

51.21

Average True Range (14)

1hour

27.27

Related Economic Data Releases

Event risk for the setup rests primarily with the greenback with September producer prices on tap for tomorrow. Consensus estimates call for prices to ease with the year on year expected to print at 6.4%, down from a previous read of 6.5% y/y. With the Fed reiterating that inflationary pressures are within acceptable tolerances, risk on the data print is to the topside, with a higher read likely to cause further concerns about the health of the domestic economy. That said, the data is likely to trigger little in the way of increased volatility.

Upcoming Events

Country

Date

GMT

Importance

Release

Expected

Prior

US

10/18

12:30

HIGH

Producer Price Index (YoY) (SEP)

6.4%

6.5%

US

10/18

12:30

HIGH

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

2.3%

2.5%

US

10/18

12:30

MEIDUM

Producer Price Index (MoM) (SEP)

0.2%

0.0%

US

10/18

12:30

MEDIUM

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

0.1%

0.1%

US

10/18

13:00

MEDIUM

Net Long-Term TIC Flows (AUG)

-

$9.5B

US

10/18

13:00

LOW

Total Net TIC Flows (AUG)

-

-$51.8B

US

10/18

14:00

LOW

NAHB Housing Market Index (OCT)

15

14

Written by Michael Boutros, Currency Analyst with DailyFX.com

To contact Michael emailmboutros@dailyfx.comor follow him on Twitter @MBForex for updates on this scalp and other trades.

To be added to Michael’s email distribution list, send an email with subject line “Distribution List” to mboutros@dailyfx.com

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