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Dollar Bulls Poised to Take Control- New USDCAD Scalp, AUDUSD Update

Dollar Bulls Poised to Take Control- New USDCAD Scalp, AUDUSD Update

2012-01-10 20:52:00
Michael Boutros, Strategist
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The loonie has appreciated nearly 1% this week as broad based weakness in the greenback saw the high yielders advance across the board. As noted in Friday’s USD Trading report, dollar softness was in fact expected early this week after three days of significant advances from the reserve currency. The move offers fresh positioning for further topside plays in the USD/CAD after the pair saw a decline of over 150 pips over the past two sessions. Our outlook on the loonie remains weighted to the downside (USD/CAD Higher) as the debt crisis in Europe deepens and investors look to diversify away from higher yielding growth backed assets. Canada’s semi-annual Financial Stability Report cited that the main domestic risk to the nation remains to be high household debt, noting that consumer debts reached a record 149% of household income with the central bank stating that further record highs are likely. Accordingly, we will continue to hold our bearish medium-term bias for the Canadian dollar.

USD/CAD Scalp Setup

Dollar_Bulls_Poised_to_Take_Control_New_USDCAD_Scalp_AUDUSD_Update_body_Picture_2.png, Dollar Bulls Poised to Take Control- New USDCAD Scalp, AUDUSD Update

The USD/CAD has continued to trade within the confines of a narrow descending channel formation for the past 24-hours with price action currently holding above the 23.6% Fibonacci extension taken from the December 8th and January 3rd troughs at 1.0160. Interim support rests here with topside resistance targets eyed at 1.0185, the 38.2% extension at 1.0215, 1.0240, the 50% extension at 1.0260, and our topside limit at 1.0285. A breach here risks substantial losses for the loonie with subsequent break-targets held at the 61.8% extension at 1.0305 and 1.0330.

A break below interim support targets subsequent floors at 1.0140 and our bottom limit at 1.0120. A break below this level negates our short-term bias with such a scenario eyeing break-targets at the 1.01-handle and the January 3rd low at 1.0075. We considered a two-hour average true range for this setup and profit targets may take longer to attain as smaller time frames yielded significantly tighter ranges. That said, an ATR of 23.96 yields profit targets of 17-21pips depending on entry. Should ATR pull back dramatically, adjust profit targets as needed to ensure more feasible scalps.

*Note that the scalp will not be active until a breach above channel resistance backed by 1.0185 or a rebound off the 1.0160 or subsequent support level with RSI conviction. We will remain flexible with our bias with a move passed our bottom limit at 1.0120 eyeing subsequent support targets.

Key Thresholds

Entry/Exit Targets

Timeframe

Level

Significance

Resistance 1 Target

30min

1.0185

Soft Resistance

Resistance 2 Target

30min

1.0215

38.2% Fibonacci Ext

Resistance 3 Target

30min

1.0240

Soft Resistance

Resistance 4 Target

30min

1.0260

50% Fibonacci Ext

Topside Limit

30min

1.0285

Soft Resistance

Topside Limit Break-Target

30min

1.0305

61.8% Fibonacci Ext

Topside Limit Extended Break- Target

30min

1.0330

Basic Resistance

Support 1 Target

30min

1.0160

23.6% Fibonacci Ext

Support 2 Target

30min

1.0140

Soft Support

Bottom Limit

30min

1.0120

Soft Support

Bottom Limit Break-Target

30min

1.0100

Soft Support

Bottom Limit Extended Break- Target

30min

1.0075

January 3rd Low

Average True Range

2hour

23.96

Profit Targets 17-21 pips

With no data on tap out of Canada over the next 24-hours, the pair will likely take cues off of shifts in broader market sentiment with a shift into significant risk appetite likely to negate our bias on said scalp. Look for event risk to pick upon Thursday with the European Central Bank interest rate decision where investors will be lending a keen ear to central bank president Mario Draghi for further clues as to future policy shifts from the governing council.

AUD/USD Scalp Setup

Dollar_Bulls_Poised_to_Take_Control_New_USDCAD_Scalp_AUDUSD_Update_body_Picture_3.png, Dollar Bulls Poised to Take Control- New USDCAD Scalp, AUDUSD Update

Our Australian dollar scalp setup from last week has continued to play out with precision with our bias shifting to the topside after price action breached channel resistance dating back to the January 3rd high. A relatively weak bearish RSI divergence suggests the aussie may be putting in an intermittent top here putting our bearish bias back on the table. We have made some slight adjustments to Thursday’s setup with support targets now held at the 1.03-figure, 1.0280, the 23.6% Fibonacci extension taken from the December 8th and January 3rd crests at 1.0264 and 1.0240. A break below our bottom limit further supports our bearish view with subsequent break-targets eyed at the 38.2% extension at 1.0188 and 1.0165.

Interim resistance stands at 1.0340 backed by 1.0365 and our topside limit at 1.0385. A breach here negates our short-term bias with such a scenario eyeing resistance targets at 1.0425 and 1.0450.An hourly average true range of 21.07 yields profit targets of 15-19 pips depending on entry. Should ATR pull back dramatically, adjust profit targets as needed to ensure more feasible scalps.

*Note that the scalp will not be active until a break back below the 1.03-figure or a rebound off the 1.0340 or subsequent resistance level with RSI conviction. We will remain flexible with our bias with a move passed our topside limit at 1.0385 eyeing subsequent topside targets.

Key Thresholds

Entry/Exit Targets

Timeframe

Level

Significance

Resistance 1 Target

30min

1.0340

Soft Resistance

Resistance 2 Target

30min

1.0365

Soft Resistance

Topside Limit

30min

1.0385

2012 High / Resistance

Topside Limit Break-Target

30min

1.0425

Soft Resistance

Topside Limit Extended Break- Target

30min

1.0450

Basic Resistance

Support 1 Target

30min

1.0303

Basic Support

Support 2 Target

30min

1.0280

Soft Support

Support 3 Target

30min

1.0264

23.6% Fibonacci Ext

Support 4 Target

30min

1.0240

Soft Support

Bottom Limit

30min

1.0209

Basic Support

Bottom Limit Break-Target

30min

1.0188

38.2% Fibonacci Ext

Bottom Limit Extended Break- Target

30min

1.0165

Soft Support

Average True Range

1hour

21.07

Profit Targets 15-19 pips

---Written by Michael Boutros, Currency Analyst with DailyFX.com

To contact Michael email mboutros@dailyfx.com or 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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