No, this isn’t another piece on Gordon Brown’s last few months in power; I’m talking about the recent gains made by the Canadian Dollar.

For those non-forex traders out there, the Canadian dollar is referred to as the Loonie, after the duck that appeared on the Dollar coin. The USDCAD rate has fallen from C$1.1680 in July to C$1.0330 today. The initial fall was part ‘we hate the Dollar’, part ‘we love commodities’, but October has witnessed a collapse below the C$1.0650 floor on a belief that Canada would follow Australia’s path to growth.The forex market does like big figures so I reckon a return to parity is a reasonable gamble-but not just now. Check out the chart.

All my indicators back a continuing downtrend; the 10-day and 21-day moving averages are pointing down and downside momentum looks strong on both the MACD and RSI indicators. So why not just sell now?

1) The RSI at 30 isn’t overstretched, but it’s not far off oversold territory;
2) The price is now 70-pips below the lower Bollinger band;
3) The C$1.03 area has a past. Run the chart back to 2008 and you’ll see that the C$1.0380 line spent much of the year acting as resistance,then once it broke, it acted equally well as support.

I’d like to see a pullback before shorting this one, the question (as usual) is how greedy to be. The aggressive approach would be to target a 50% retracement of today’s move, so around C$1.0380, though this could still be outside the lower Bollinger band. The cautious (patient) strategy would be to target the last S&R line at C$1.0650; this also coincides with the 10-day MAV.

I prefer to keep an eye on trades like this and wait for the bigger retracement. It means I miss out on some moves altogether, but don’t get caught entering as many trades just as the market is turning.

This currency pair was signalled in today’s Trading Edge as hitting a new 52-week low and breaking the lower Bollinger band. This Trading Edge is a damned useful resource for spotting potential trades.
Happy Trading