USD/CAD at Top of Descending Wedge
Cory Mitchell, CMT
The USD/CAD has accelerated quickly to the top of a descending wedge. Taking advantage of the recent rise was discussed in the Watch for USD/CAD Consolidation Breakout.
This has put the USD/CAD in a potential resistance area. The actual wedge line levels (drawn on the chart) aren't important. The wedge trendlines simply signify that the price is in an important area.
The price is still below the Nov. swing high of 1.3328. That means the downtrend is still in effect.
I am watching for a consolidation (a tight, mostly sideways, trading range) to develop on the daily or 4-hour chart between 1.3285 (current level) and 1.3328. The consolidation can occur anywhere around those levels.
If the price breaks that consolidation to the downside, that signals a shorting opportunity and a likely continuation of the wedge. I would use an initial downside target of 1.31. This is above the bottom of the wedge (1.2950) due to the strength and swiftness of the recent rally. The trade will be reassessed if the price falls back to the 1.31 area.
If the price breaks higher from the consolidation (not yet formed), the longer-term uptrend could be resuming. Since the price has already had a significant run I would still enter a long but use a tight trailing stop loss. If the wedge is definitively broken, there will be plenty of opportunities to get in on a rise, but for now, I would play the upside with a tight trailing stop instead of projecting a further big rise.
USD and CAD interest rates are the same, at 1.75%. This means most brokers will charge a small rollover regardless of whether a position is short or long.
By Cory Mitchell, CMT. Join me on Twitter @corymitc.
Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.