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Short-term trading idea FX USD/CAD - bear speculation: weekly pin bar

Trading opportunities on the currency pair: Trading on the dollar closed down on Friday. This fall was brought about by the closing of long positions before the weekend (French elections) and by appreciating oil (technical rebound).

Friday's candlestick engulfs the previous three daily candlesticks. A pin bar with a long shadow has formed on the weekly timeframe. Everything is pointing to the start of a correctional phase. A sharp drop against the trend always raises suspicion, so my forecast is predicting a drop for the dollar through a double top formation. The target is 1.3476. Traders should look to sell at around 1.3777/1.38 and to set stop levels above 1.3865.

Cyclical wave analysis rules in favour of selling dollars. The first swing from 1.2968 to 1.3535 ( 567) is roughly equal to the second swing from 1.3223 to 1.3793 ( 570).

Background:

The previous trading idea on the Canadian dollar came out on the 16th of January 2017. At the time, one US dollar was worth 1.3108 Canadian. At the time of writing that review, a breakout of the trend line had been confirmed. Despite the hammer formation, I was expecting the USD/CAD rate to fall to 1.2815/20 by the 8th of February 2017.

Given that there was a risk of exiting this hammer formation on the candlestick upwards, I suggested waiting for the Stochastic indicator to return to the sell zone. The Stochastic oscillator returned to the sell zone as the dollar restored to 1.3388. In the end, the hammer formation completed, and the breakout of the trend line was shown to be false After rising to 1.3388, the rate to 1.2948, failing to reach the target zone of 1.2815/20.

Current situation:

On the back of a drop in oil and the general rise of the dollar, the Canadian fell against the US dollar in March to 1.3535. After a 25-day correctional rally, the dollar continued towards 1.3793.

Now let's talk about why this currency pair has attracted my interest. On Friday, trading on the dollar closed down. Even a weak jobs report from the US couldn't have changed this. Employment figures beat market expectations and unemployment fell. Average hourly earnings were in line with expectations.

The US created 211,000 new jobs outside the agricultural sector in April against a forecast of 190,000 and a previous reading of 79,000. The figure for February was revised upwards from 219,000 to 232,000, while March's was revised downwards from 98,000 to 79,000. The aggregate revision comes to -6,000.

Unemployment fell to 4.4% (forecast: 4.6%, previous reading: 4.5%). Average hourly earnings rose by 0.3% MoM, in line with expectations, against a previous reading of 0.1% (downgraded from 0.2%). The participation rate came to 62.9% against a previous reading of 63.0%.

The dollar strengthened in response to the NFP report, but this bullish impulse was quickly extinguished. This had something to do with the closing of long positions before the weekend as well as rising oil quotes. Oil appreciated by 5.8% to 49.36 USD per barrel. Below 47 USD, there were more willing buyers. The fundamental factors are still against oil, but one technical factor has worked in its favour; a rebound from the support line.

Friday's candlestick engulfs the three previous ones. Coincidentally, the dollar started to weaken as the upwards waves came into sync. The first swing from 1.2968 to 1.3535 ( 567) is roughly equal to the second swing from 1.3223 to 1.3793 ( 570).

On the weekly timeframe, a pin bar with a long shadow has formed. Everything is pointing towards the start of a correctional phase. A sharp drop against the trend always raises suspicion, so I'm forecasting a weakening of the US dollar through a double top model. The target is 1.3476. Traders should look to start selling at around 1.3777/1.38 and to put stop levels above 1.3865.

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