First things first, this is one of those setups where a full risk disclosure is necessary. As mentioned during yesterday’s session, the remainder of this week is set to deliver a full docket of event risk. First is US GDP tomorrow followed by Canada GDP on Friday. Therefore a pair like USDCAD is expected to be extremely volatile and should only be traded with a half-sized position, if at all.
You may be wondering then why I decided to include this commentary at all considering the highly-volatile market conditions that lie ahead. The reason is simply because we have been talking about this channel break for some time now and it just so happens that yesterday’s price action respected the level as new support. Whether or not you decide to trade it and accept the risk of increased volatility over the next two sessions is of course entirely up to you.
With that out of the way, let’s get into the technicals. As I just mentioned, the ascending channel that had been forming since the May low acted as new support during yesterday’s session. This came after the FOMC statement brought the pair to a session low of 1.2860.
The day’s formation is really more of a bullish rejection bar than that of a bullish pin bar, which by (my) definition requires a tail that is at least two thirds of the range (high to low). Still, I do think yesterday’s session was significant in that the pair was able to recover 85 pips from the low to close back above former channel resistance, now support.
Summary: Opportunity to trade yesterday’s bullish rejection bar. A more conservative entry method would be to wait for a daily close above 1.3063 before considering a long position. Key resistance comes in at 1.3063, 1.3260 and 1.3470.
