Background
USDCAD has seen a fair old pullback in recent weeks and deeper than I was expecting if I'm honest (which I try to be!). If you look at the monthly Candlestick chart, we posted a Doji in March, after February's "Hanging Man". However, the short-term time frames still suggest this is a market heading higher, and in the last few sessions we appear to have found support around 1.1000-1.1016, which is "psychological", of course, but also a short-term Fibonacci support.
Yesterday we saw weakness then a rally to close back near the day's highs. This gave us a "Hammer" candlestick on the daily chart (a candle with a long lower shadow and a small real body near the top of the day's range). This is a reversal pattern favouring the bulls if seen in a falling market as it suggests downside rejection. We will act upon this reversal if it is confirmed with a move through 1.1079 as this will also trigger a small buy signal on the intraday charts.
Management and risk description
Buy a break of 1.1079. We expect this to provoke a reaction higher. If it doesn't, you may want to consider a quick scratch or take a small loss and wait to see if we get a cleaner signal. Initially, a 50-point stop seems prudent and offers good risk versus the potential reward.
Parameters
Entry: buy a break of 1.1079..
Stop: 50 ticks.
Target: 1.1155 on half, 1.1275 on the balance.
Time horizon: 1-2 weeks.
Short-term (120 minute)
