Back to the CAD: Post-CPI Trading

Trade War Summary

Reports that China and US to begin negotiating in an effort to end the trade tensions by the end of November triggered some volatility in the Forex market. The negotiations are due to take place on 21 – 22 August, 2018. The US trade negotiations with China and Europe are likely to have a strong impact on the market.

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AS THE OBJECTIVE OF THE STRATEGIES HAS BEEN MET THE SIGNALS ARE NOW ACCESSIBLE TO ALL TRADERS. ACTIVE SIGNALS ARE FOR MEMBERS ONLY.

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The Turkish Lira (TRY) woes are yet to end. It has been reported that Turkey has sold approximately 50% of its US assets such as bonds and treasury bills. With the US still threatening to up the sanctions on Turkey we must expect unusual volatility in the market.

Canada’s Consumer Price Index (CPI) came in above the market expectations at 0.5%. The Canadian Dollar (CAD) immediately strengthened against a basket of currencies. In this incident it was a wise decision to exit GBPCAD prior to the CPI.

The most significant event this week aside trade negotiations is Fed Powell’s speech on Friday at Jackson Hole. Traders may wish affirm whether the Fed will continue hiking rates in light of the trade tension and the financial crisis in Turkey. To recap, the US sanctioned Turkey for refusing to release an American pastor, which significantly devalued its local currency and lead to credit rating downgrades.

We have noted in our prior updates that USD may weaken against a basket of currencies. While the USD may extend its weakness our strategy is to long USD once an entry is affirmed. We expect USD strength to be more rewarding than the current USD weakness.

We already have the price levels drawn, it may take more time until we have the ability to buy USD. We did mention AUDUSD but in light of Friday’s gains we are unlikely to attempt a trade in the Aussie.

CAD Weakness Strategy

Although CAD strengthened due to the CPI we are unconvinced whether CAD may continue strengthening in the market.

EURCAD 4hr Chart

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GBPCAD 4hr Chart

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EURCAD painted reversed H&S on the 4hr chart. As we are already exposed to the Euro we are uncertain whether we wish to up our current exposure. As the price already rebounded off the support (diagonal line) the potential drawdown has increased.

GBPCAD has also painted reversed H&S (diagonal neckline) on the 4hr chart. A horizontal neckline is preferred by us but the current pattern is fairly attractive. As it is a 4hr entry, should we opt for the trade we anticipate immediate gains with the next 24 hours.

We will issue an update via email after the opening of the Forex market.

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GBPCAD Trade Alert

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GBPCAD long at market price (ask 1.6657)
Take profit: 1.6910
Protective stop: 1.6558
Risk Ratio (RR): 1: 2.6 (approx.)
Estimated duration: 8 days

Relevant as long as GBPCAD is below 1.6690

Note: The potential drawdown is a re-test of 1.6595. This is a 4hr entry. the key events are on Friday, if timed correctly corrective gains may materialize within the next 24 hours.

20/08/18 UPDATE: GBPCAD gains came to a halt at the neckline at the time of this writing, which may suggest the resistance is holding. In tomorrow’s session we may see a break above the neckline or corrective weakness to re-test the lows

There are weak indications for a breakout rather than corrective weakness. We do have the ability to tighten the protective stop (possibly to the entry) but we must acknowledge that the odds of the market triggering the stop are high.

The reason why we are leaning towards remaining in GBPCAD despite the risks is because we are expecting higher volatility across GBP pairs and crosses.

Please click on the chart to enlarge:

Due to the above we are closing 30% of GBPCAD long trade at market price (1.6687), we will tighten the protective stop once the spread stabilizes after the daily close (stop was later shifted to 1.6655).

21/08/18 UPDATE: GBPCAD protective stop is tightened to 1.6690.

21/08/18 UPDATE II: GBPCAD broke above the resistance only to re-test 1.6800 (which we marked on the chart). The re-test itself suggest some retracement before a resumption of the uptrend. The retracment is not guaranteed to materialize but must be anticipated.

The potential retracement may be limited to 30 pips or it may be as large as 80 pips. We would have been in a better position of 1.6800 was note re-tested.

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This is another tough decision we have to make as we are not keen on absorbing such a retracement in 4hr entries. We decided to close GBPCAD long position at market price (1.6773).

AUDUSD Trade Alert

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AUDUSD is the first currency pair that may have provided us with a short entry. We are continuing to focus on all of USD pairs and crosses. We are assessing whether USD strength may be related to Jackson Hole.

AUDUSD short at market price (bid 0.7362)
Take profit: 0.7060
Protective stop: 0.7480
Risk Ratio (RR): 1: 2.7 (approx.)
Estimated duration: 21 days

Relevant as long as AUDUSD is above 0.7335

Note: This is a daily entry. Depending on the progress of the short trade we would like to notify upfront (which is rare) that if required we will shift the protective stop above 0.7390. The trade will shortly be updated on the website. The potential drawdown is a re-test of 0.7440.

EURUSD Trade Alert

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EURUSD short at market price (bid 1.1595)
Take profit: 1.1210
Protective stop: 1.1778
Risk Ratio (RR): 1: 2.1 (approx.)
Estimated duration: 21 days

Relevant as long as EURUSD is above 1.1570

Note: We layered the protective stop above the latter resistance. Should 1.1665 give way it may lead to a stop hunt in the market. The potential drawdown is a re-test of 1.1650.

This may be an early entry as a higher price is preferred (40 – 50 pips) but we cannot determine whether it will be provided by the market and the potential drawdown can absorbed. In an event EURUSD begins correcting lower and stalls around 1.1540 we may exit the trade.

23/08/18 UPDATE: AUDUSD selling is more aggressive than we have anticipated. The risk in such price movements are corrective gains that tend to follow.

Our main concern is that EURUSD re-tested 1.1540 and corrected higher. We will wait until we near the daily close but a successful re-test has increased the odds for a bullish spike in EURUSD. Should EURUSD spike higher we are uncertain whether AUDUSD will remain at current levels.

The potential retracement in AUDUSD is a full retracement, back to the entry. We are unwilling to absorb such a retracement as it is not a weekly entry.

Please click on the chart to enlarge:

It is a tough decision but we prefer adopting a conservative approach in these market conditions. AUDUSD is trading at 0.7271 (ask) at the time of this writing, we are closing the short trade at market price.

23/08/18 UPDATE: As we updated yesterday when we issued trade, should EURUSD re-test 1.1540 and fail to break below we may exit the trade. There are now conflicting patterns on the daily chart, bearish and bullish. The price can spike above 1.1700 before reversing lower.

We cannot determine whether the gains will in fact take place tomorrow (as it is the daily chart) but we cannot remain in the short trade. Tightening the protective stop is an option but we tend to exit the trade in such circumstances.

Please click on the chart to enlarge:

EURUSD is trading at 1.1545 (bid) at the time of this writing, we are closing the short trade at market price. We reserve the ability to re-enter if found to be appropriate.

23/08/18 II UPDATE: From the daily chart EURNZD path for further gains remain intact. However, on shorter time frames we do see the risk for some retracement (around 80 pips, which is minimal for the cross).

What we will attempt to do is re-enter EURNZD if the corrective weakness takes place within the next 24 hours. If the gains continue we may be unable to re-enter but it is a risk we are willing to take.

Please click on the chart to enlarge:

EURNZD is trading at 1.7392 (bid) at the time of this writing, we are closing the long trade at market price with an attempt to re-enter on Friday should it correct lower.

Last Updated on August 24, 2018