The Weekly Update: The Canadian Dollar and HFT in China

It’s All About the CAD

The New Zealand Dollar (NZD) daily close is preventing us from executing a long trade as we highlighted in our updates on Friday. We observed multiple time frames including the monthly charts as it is the monthly close and decided to focus on USDCAD. Moderate selling was noted in the Canadian Dollar (CAD) as crude oil prices tumbled across the board. The moderate gains in USDCAD provided a rather attractive technical entry in the Forex market.

USDCAD Weekly Chart

Please click on the chart to enlarge:

USDCAD Weekly Chart 02/08/15

USDCAD Weekly Chart 02/08/15

The uptrend in USDCAD has ended at the weekly close with a classic Japanese reversal pattern with negative divergence in the MACD Histogram, early signs of an upcoming reversal. We extended our technical analysis into the monthly chart due to the monthly close to determine the nature of the forthcoming downtrend.

USDCAD Monthly Chart

Please click on the chart to enlarge:

USDCAD Monthly Chart 02/08/15

USDCAD Monthly Chart 02/08/15

It appears USDCAD closed above the monthly resistance as highlighted in the chart, which may suggest further gains are due. However, on many occasions the price tends to re-test the breached resistance level, which is why the weekly chart is providing us with bearish signals. Due to the MACD Histogram there is a fair possibility the breakout may turn into a flaws breakout, which may lead many forex traders astray.

By the book, if the negative divergence kicks in the price is expected to break below 1.1960 in coming months as this is a weekly chart. We are not opting for the objective target of the reversal and choose to target 1.2580. We must pay close attention to 1.2860 to validate our suspicion the recent gains are in fact part of a false breakout. The weekly negative divergence in the MACD Histogram left little room for the price to post limited gains.

A gap higher in USDCAD will enhance the Risk Ratio (RR) of the trade and reduce the required stop loss order, which is what we would like to see when the markets open at 21:00 GMT. The protective stop loss order must be placed above the resistance level (in orange). Should USDCAD gap lower we may need to revise our entry and determine whether we should act on short time frames to maintain a decent RR.

Despite the estimated duration we gave for the trade the Canadian Employment data on Friday (7 August, 2015) is the key fundamental trigger for the trade.

USDCAD Trade Alert Details

Entry: market price (1.3086)
Take profit: 1.3247
Protective stop: 1.3247
Risk Ratio (RR): 1 : 3 (approx.)
Estimated duration: 25 days

The missing trade alert details will be emailed to you after 21:00 GMT when the spreads stabilize and then updated to this page.

We will be monitoring AUDUSD and NZDUSD as we look for a lower price in order to enter the market. On Thursday the Bank of England (BOE) will release the inflation report, the bank rates vote and the official bank rate at the same time. As this was never done before we are observing GBP but at the time of this writing failed to discover a technical entry that is inline with our risk management. Should we discover new entries you will be notified via en email as we outline our trading strategy on the website.

On a separate note it appears High Frequency Trading (HFT) accounts played a major role in the volatility seen in China’s Stock Exchanges. 24 brokerage accounts were suspended for 90 days and according to recent reports hedge fund Citadel is amongst those accounts.

07/08/15 UPDATE: Although most of the updates were made via emails, USDCAD posted a high of 1.3212 before reversing lower, trading at 1.3107. Top H&S formed on the 4hr chart but at the time of this writing, the neckline at 1.3105 was not breached, The Non Farm Payrolls will determine the outcome our short trade.

10/08/15 UPDATE: We are pleased USDCAD retraced lower as we have anticipated moderate gains in the commodity currencies (AUD, NZD and CAD).

USDCAD Weekly Chart

Please click on the chart to enlarge:

USDCAD Weekly Chart 10/08/15

USDCAD Weekly Chart 10/08/15

USDCAD is trading at 1.3002 at the time of this writing. We are closing 30% of the short trade at market price. We will consider whether we should shift the stop within the next 60 minutes as we await the daily close.

10/08/15 UPDATE II: After observing multiple time frames it appears there is room for corrective gains in USDCAD, approximately +130 pips. This is not a long entry but a possibility that if occurs will provided a short entry in USDCAD.

Although this is a weekly entry we are unwilling to absorb +50 pips (approx.) against the long trade. It is a tough decision but we are shifting the stop to the entry. If the trade will be stopped out by the market we will consider a re-entry. We are closing 20% of the short trade at market price (1.3007).

Following the PBOC actions (Yuan devaluation) USDCAD rose as we have suspected and triggered the protective stop at the entry. We have nevertheless ended the trade with a fair profit.

As USDCAD trade is closed, this page can  now be accessed by all traders. Open trades are restricted to members only. We have been proving trade alerts in the Forex market since May 2014.
The Weekly Update: The Canadian Dollar and HFT in China