Time to Buy USD/CAD?
Introduction
With the NFP around the corner, it is worthwhile considering USD/CAD as one of the most suitable pairs to trade during the expected period of volatility.
Rationale
Rationale for this statement can be justified through several steps of analysis. Through observing the present and past, it can be possible to prepare for the future.
1) Bullish shift observed over the past two days (3rd and 4th May 2016), successfully piercing the 4-Hourly 50-EMA (present).
2) Price action that occurred prior to the bullish shift (historical).
Point 1 Explanation
The two-day bullish shift in a down trend, (as the USD/CAD has been in for three months) is either short covering explicitly (in which case trade unsuccessful) or we could witness the beginning of a new trend.
Point 2 Explanation
4-Hourly price action historical analysis can present an indication of price importance. Figure 1 below, represents “The Three Stages”.
“The Three Stages” Developed
Stage 1 – Equilibrium (EQ). EQ will be a three candle signal (bullish, bearish, bullish or bearish, bullish, bearish) where through candlestick addition a long legged doji is the result. This shows anything the sellers can do the buyers can match and vice-versa, hence equilibrium is observed.
Stage 2 – Successful Attempt to Contain (SAC). From below EQ and attempt is made by buyers to break EQ. Observed here is successful containment of the buyers by the sellers.
Stage 3 – Two Bar Confirmation (TBC). From below EQ an attempt is made by buyers to break EQ, this attempt has proved successful and confirmed the region as a “win” for buyers (i.e. at this time fair price is above this region).
Taking these factors into consideration it is argued that the USD/CAD has a downward correction due before proceeding to new weekly highs.
Trade Idea
Buy USD/CAD in 1.2650 region, stop loss 1.2500 (below Stage 3, TBC low) and target 1 take profit 1.3000, target take profit 2, 1.3250.
