Potential signal
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I am buying on a break of the 200 Day EMA to the upside, with a 100-point stop, and a target of 1.3940 above.
The US dollar has risen against the Canadian dollar yet again during the trading session on Tuesday as interest rates in America have really taken off to the upside.
The Canadian dollar is supported by oil, but not necessarily in this pair because the United States of course produces so much oil. And quite frankly, the United States refines Canadian oil and sells it back to them, so it’s not the same dynamic that most people learn when they first start trading forex.
The interest rate differential still favors the US dollar by about a full 1%. While not large, it is something and therefore I think it continues to be a bit of a driver.
The Canadian economy is highly dependent on the US economy as well, so that could come into the picture also. Quite frankly, Canadian numbers recently haven’t been stellar, and the US numbers continue to outperform, so it does make sense that we continue to grind to the upside.
200-Day EMA Potential Barrier
But the technical picture certainly puts into focus the 200-day EMA, which of course a lot of people will be watching as a potential barrier.
If we break above the 200-day EMA, currently at the 1.3783 level, then markets could go looking to the 1.39 level, possibly the 1.3950 level.
On a pullback from here, it’s not until we break down below the 1.37 level that I would be shorting this pair, and even then, it more likely than not would just be a situation where you are taking a quick trade to the downside, not necessarily anything massive.
I do like the idea of buying short-term pullbacks that show signs of a bounce, but I also recognize this pair does tend to grind a lot.
Again though, if we were to break above that 200-day EMA, I’d be interested in getting long with a slightly bigger position.
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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.
As seen on: Pairs Of Aces Podcast,The Trader Guy, FXEmpire
