The U.S. dollar has been on a tear lately, but I’m thinking sellers might return at this long-term area of interest on USD/CAD.
Will the trend line resistance hold?
This pair has been trading below a falling trend line on its daily time frame, and a correction to this area has been underway.
Technical indicators are suggesting that the long-term selloff could resume soon, as the 100 SMA is below the 200 SMA while Stochastic is already reflecting exhaustion among buyers.
This trend line has been holding since the start of the year, so it’s a pretty strong one. It’s also right smack in line with the 61.8% Fib, the 100 SMA dynamic resistance, and a former support zone around the 1.2400 handle, too!
If dollar bears return at this point, USD/CAD could fall back to the swing low at the 1.2000 major psychological level soon.
There are no major reports due from both Canada and the U.S. for the rest of this week, so I’m inclined to think that profit-taking off the post-FOMC rallies could come in play.
I’m looking to short around the 1.2375 level and set a stop that’s roughly twice the average daily USD/CAD volatility.
Aiming for the support just slightly above 1.2000 should give me around 2.5-to-1 return-on-risk. What do you guys think?
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