Trading Idea of the Week: Dollar vs. Loonie

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Trading Idea of the Week: Dollar vs. Loonie

The Loonie, which is a geeky FX nickname for the currency of Canada AKA Canadian dollar has caught Invest Diva’s eyes this week. You are about to see a 360 Invest Diva Diamond Analysis on the US dollar vs. Canadian dollar: USD/CAD. At any point if you feel you’re lost in translation, click on the links to check out the Forex Coffee Break with Invest Diva’s online education course. It has been called the most easy-to-understand, entertaining and thorough video education course out there.

Fundamental Points

FX markets were very quiet yesterday, moving only around options expiry’s and hourly pricing fixes. The lack of momentum in any direction was in part due to a very light data sheet, but also probably thanks to less questions over when QE is on its way out.

USD: In the US, Bloomberg are running a story that says one third of US cities will see growth decline or stagnate this year. Of 263 surveyed areas, that’s 119 that will stand still in terms of growth. This is particularly bad because this is up from 73 last year, showing that QE may be having a positive overall effect, but it is clearly not reaching everywhere that it needs to get to.

Fed Chairman Ben Bernanke is due to speak at the National Economists Club today at 7 pm EST. As head of the central bank, which controls short term interest rates, he has more influence over the nation’s currency value than any other person- before he is replaced possibly by Janet Yellen that is.  The US Dollar Index fell for a third day today on speculation Ben will say the economic growth isn’t yet sufficient to trim stimulus. If he in fact does say that again, the USD will be under even more pressure which means it may weaken and fall all the way down.

Also coming up for USD on Wednesday Nov 20th:

–         US Retail Sales Release with a 6-day delay due to the US government shutdown. A better than expected number will push the dollar up

–         Federal Open Market Committee aka FOMC minutes to be released on Wednesday as well, at around 2 PM EST. If it reveals talks about lowering the interest rates or more money printing (QE) that could push the dollar down

CAD: Bank of Canada, BOC’s governor Stephen Poloz will speak on Wednesday at 4:15 PM EST. If he says again that he would extend a three-year pause in interest-rates increases, the Loonie will weaken. That means, the price our pair of speak, USD/CAD will move up. Do you know why? Secret revealed here.

Technical Points

Okay let’s be honest. The USD/CAD is spreading mixed signals as it is dancing on the daily forex dance floor*. In order to avoid a major brain melt-down, I have divided my analysis into two charts. First, let’s take a look at the patterns, lines and shapes of the romantic candles*, where I identified a triangle, Double Top and a Bullish Engulfing candle pattern.

The bullish engulfing candle pattern indicated that the pair may push higher up, in which case a break above the triangle could open doors for more gains. But if the Double Top confirms and breaks below the neckline, we could expect further declines. The neckline, by the way, falls on a previous resistance from mid-October and end of May, which makes it an important one.

Next, let’s reach over to our forex beauty kit* and add Mr. Ichimoku and Mr. Fibonacci to the dance floor.

The pair is dancing above the Ichimoku cloud with the Kijun line (in blue) and the Tenkan line (in gold) flattening. These are all indication of consolidation. Should the pair move a bit down towards 38% Fibonacci level, which happens to fall on the Double Tops’ neckline, we could expect a hold or break.

Sentiment Points

The Speculative Sentiment Index (SSI) shows that 44% of traders are long USD/CAD. The SSI is a contrarian indicator to price action and the fact that the majority of traders are short gives signal that the USDCAD may continue higher. The trading crowd has grown less net-short from yesterday and last week. The combination of current sentiment and recent changes gives a further mixed trading bias.

Invest Diva Diamond Trading Strategy

Wait until Wednesday to see what the international economic gossip makers bring to our attention.

1-      If the pair moves higher up, we could expect a rise alongside the upper band of the triangle which could eventually lead to a formation of a triple top at 1.04965. A break above the upper band of the triangle could open doors to more gains with resistance levels at previously tested prices of 1.05557 or 1.06101.

2-      If the pair moves down towards 38% Fibo level AND breaks it, the Double Top will be confirmed and we could expect the pair to fall down towards 50% or even 68% Fibonacci levels.

Always set a stop and limit for your trading order according to your capital analysis to avoid unexpected losses.

Invest responsibly!



* “Forex dance floor,” “romantic candles” and “forex beauty kit” are Invest Diva metaphors used both in the book Invest Diva’s Guide to Making Money in Forex published by McGraw-Hill, and the Forex Coffee Break with Invest Diva’s education courses.

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