USDCAD 200-Pip Long Opportunity Edges Closer

On June 1st, I wrote about a potential USDCAD bounce from the 1.3440-1.3490 area.

I even told Daily Price Action members to watch for a stop run below 1.3440 heading into last week’s non-farm payroll.

We’ve since had two wicks below the area to clear out early longs.

But I’m not convinced it’s time to long USDCAD just yet.

The pair isn’t showing any clear buy signals, and other markets (discussed below) have yet to confirm a USDCAD long opportunity.

Here’s what needs to happen for USDCAD to rally this month:

1. A Dollar Rally

The most obvious requirement for a USDCAD rally is a stronger dollar.

I’ve written about the US Dollar Index (DXY) resistance at 104.25 for the last few weeks.

A sustained break above that on the daily time frame is required to open up levels like 105.00 and 105.60.

I continue to think a DXY 105.60 retest is coming, it’s just a matter of how much consolidation we get beforehand.

2. A Stock Market Pullback

The second, less obvious, requirement for a USDCAD rally is a pullback from stocks.

This goes hand-in-hand with a higher DXY since the two tend to be inversely correlated.

You can see this from the chart below, showing an inverted S&P 500 next to the USDCAD.

Since the S&P 500 chart is inverted and is closely tied to USDCAD, it suggests the two are inversely correlated.

So how might a stock pullback materialize?

The most likely scenario is for Friday’s breakout above rising wedge resistance to fail.

If you’ve followed me for a while, you know that upward breaks of ascending levels are prone to failing.

A daily close back below the April 4th trend line at 4,240 will confirm the fakeout and expose the lower trend line at 4,180.

That would likely push the DXY higher and USDCAD along with it.

As for trading USDCAD this week, if today finishes as a bullish pin bar, I’ll watch for a 50% entry on Wednesday.

And if today’s session closes below 1.3440, I’ll stand aside and wait for a better signal.

Targets for USDCAD if we get the rally include 1.3650 and 1.3750.

Alternatively, a close below 1.3390 and 1.3350 would negate the bullish outlook.

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