Yesterday I was quite concerned about the success of this trade, especially when $1.06 provided support two days in a row. If you want a refresher, the original trade setup is here. The Canadian retail sales report was bullish CAD but reflected for the most part an increase in energy related sales, not consumer activity per say. So if I ‘m being honest I’d have to say I was jittery about this trade.

Fortunately this turned out to be a classic example of being patient and letting the market do it’s thing. Ahead of the Canadian CPI report this morning it paid off with the pair falling to the bottom of the channel for a cool 93 points.

I’ve taken half my position off as profit and protected the other half with a break even stop order at $1.0625. I think this pair could fall to the $1.0450 area which would be the 38.2% pull back zone of the big dollar rally. That is what I’m targeting with this 2nd lot.

I hope this trade was a good example of finding a technical setup and combining it with potential fundamental kickers.

Take care!

Ryan

This morning I got short USD/CAD based on the original setup I posted here. The bearish engulfing four hour candle was enough to get me short at $1.0625. I had to wait for the pull back to minor resistance as shown in the chart image above. Don’t ever sell into the bottom of a rally, get the best price you can.

I think this trade is in good shape for the following reasons:

1. Canadian data continues to be strong with wholesale sales m/m increasing by 2.0% vs. an expected .07%.
2. The U.S. is dogged by more financial sector worries and oil is finding support around $113.
3. Wholesale inflation for the U.S was higher but new home starts were stale, not convincing for a rally.
4. Check out this article: “US bank to fail within months“, hearsay but effective.

Tomorrow’s retail sales report from Canada will make or break this trade in my opinion. If the number is very positive that could take whatever wind is left in the sales of this Dollar rally out for the short term.

Overall the sentiment for dollar seems bearish and I expect further consolidation down to the $1.0550 zone.

Loonie is a volatile pair so be patient with it and don’t trail to closely with your stops.

Best of luck, stay tuned.

Ryan

Many readers have asked me how I “read” market sentiment so today I thought I’d try to explain how I do it with a sell idea on the USD/CAD.

In my opinion “market sentiment” is simply the collective mood of the market when weighing two currencies together. Since each spot transaction consists of a buy and a sell position you really need to ensure you are pairing a weak currency with a strong one in order to buy strength and sell weakness.

The hard part about gauging market sentiment is that it plays out in real time and changes over the course of a trading week so you must keep up.

You need to understand what the market is expecting and what they are getting as economic data is delivered throughout the week so fundamental reports are key to getting a grip on market sentiment for a given currency pair.

Generally I pay attention to four things:

1. Price action, where is the market trading right now?
2. What fundamental data is arriving this week?
3. What is happening in the correlated markets right now?
4. 4) The position of institutional speculators on the Commitment of Traders report.

This list isn’t in any particular order just the top 4 things I scour data on when looking at a potential trade. With those indicators in mind, let’s take a look at the USD/CAD.

Where is the market right now?

The dollar has been on a 750 point rocket ship against the Lonnie since the 15^th of July but it appears the market may be building a top to this rally, why do I say that? I’m glad you asked.

The rally represents a breakout from the nearly seven month long range that began in December, 2007. If you measure maximum width of the trading range you will find the amplitude is about 660 pips. Breakout traders usually use the width of the trading range preceding the breakout as their profit target so from a technical point of view it makes sense the rally is consolidating around 700 pips.

As a channel trader, I like the descending channel but we have to be careful. The consolidation range may be a bull flag.

What fundamental reports are anticipated this week?

When I consider fundamental data I like to find a pair that is not evenly matched with fundamental data over the course of the trading week. You put the odds in your favor that one currency will beat up the other currency if its data is good and is unchallenged by data on the other pair.

So far, the U.S. isn’t starting this week off very well with equity markets falling on bad financial sector news today. Loonie has plenty of opportunity to beat up the Dollar this week including:

1. Tuesday: Wholesale Sales
2. Wednesday: Retail Sales
3. Thursday: Core CPI

Basically I’m looking for more bad news for Dollar and more good news for Loonie with a bearish bounce off the descending channel before I will short the pair.

Stay tuned and good luck,

Ryan

Following up from last night I am happy with how this trade ended up. Tonight the market is trading near the top of an ascending channel which is our profit target for this USD/JPY long.

On my original post I speculated this trade would make a nice long back up to the $110 level and I just closed the trade at $110.28.

Not a bad week overall. With only one trade we did 90 points on the 1st half and 164 points on the second half of the trade.

I am going to call it a week and wish all of you a wonderful, relaxing weekend!

Ryan

Every once and a while you catch a rally from the very bottom and ride it to the very top. I think I can count the number of times I’ve done that on one hand but it sure is fun when it happens. I got long USD/JPY following the retail sales numbers when the pair failed to break below the support levels I pointed out in last night’s post. Click here to see the original trade setup.

I decided to lock in some profit at 90 points and moved my stop order to break even on the remaining lots.

The Dollar rally was interesting in the face of soft retail sales numbers and rising oil so if my stop survives the London session this should get interesting when the CPI numbers come out tomorrow morning.

If you read my post on the FOMC’s statement (click here) you know I believe the Fed is turning their attention to the “inflation factor” so a strong CPI number may boost the Dollar.

Additionally the Yen is looking weaker tonight as the numbers have been soft all week and tonight’s Tertiary Industry Index missed the mark lower as well.

Overall I feel this trade is in good shape with 90 points booked, a break even stop and a positive interest rate carry.

On a personal note, I was very pleased to read the comments by Bernard and Bill this evening. I blog because I like to help people learn to trade and make some money. I’m glad to read I was able to do both with this trade. I’m also very thankful you take time out of your day to read my blog.

Best of luck!

Ryan

There are a lot of converging factors at the $108.40 level which interest me in getting long USD/JPY at least for a short term trade back to $110.  We have broken resistance which may offer support, a trend line and a 61.8% Fibonacci level all in the same area.

As of this evening, I’m simply watching this level. I don’t plan to get long until we see confirmation in the candles that $108.40 is holding.

I’m also interested in the U.S. Retail Sales numbers due out tomorrow morning. If the number is very strong I suspect long opportunities in pairs such as USD/JPY and USD/CHF.

Overall though remember your job is to protect your capital. If you made a ton of pips last week don’t get a big head and be eager to trade this week. Keep your profit, don’t trade if you don’t have to.

Stay tuned and good luck,

Ryan

We met our profit target this afternoon on the EUR/USD short trade I posted earlier this week. You can review the original trade idea by clicking here.

This morning we saw fantastic economic data that helped the Dollar deliver a one-two punch on the Euro.

Pending Home Sales were expected to be down 1% month-to-month for July but came in a scorching 5.3% followed by Consumer Credit posting more than double what was expected.

The result was a swift run to our profit target and now EUR/USD is making its way lower by almost another 100 points.

Update: Oh yeah, I forgot the little bit about the ECB rate and statement, that was just slightly important also!

If your trading multiple lots, here is how I handle these trades. I take 1/2 of the position off at the lower trend line and move the stop to protect the rest.  Right now, I would place that stop at $1.5386 and let it run.

There is little support for the Euro until $1.4950 so hang in there and you might get a nice juicy profit over the next few weeks.

Hope you were able to join me on this one!

Ryan

Following up from last night’s trade idea our EUR/USD short opened slightly before the London session started this morning. Normally I am not up that late to trade but I couldn’t sleep so I took advantage of this doji candle and got short at $1.5486.

The profit target is down around $1.5350 and the stop is at $1.5560.

EUR/USD might offer a nice opportunity to get short the pair on a bounce from the resistance trend line it broke yesterday. An entry around $1.5510 would be ideal if a nice reversal candle stick shows up on the four hour chart.

This trade has about a 150 pip potential if the market fails to close above the trend line and bounces below $1.55 again. The target is obviously the lower trend line.

Keep an eye on it, good luck.

Ryan

The Fed left rates unchanged today at 2.0% which doesn’t surprise anybody but reading the financial press this afternoon I have to wonder am I missing something?

According to DailyFX traders were expecting the Fed to increase rates by 75 bps over the next eight FOMC meetings:

In fact, traders were expecting the Federal Reserve to increase rates by 75 bps over the next eight FOMC meetings, according to overnight index swaps on the Fed Funds rate. However, today’s FOMC statement was clearly a disappointment for many market players and the recent strength in the U.S. dollar may easily evaporate in a wave of profit taking.

-DailyFX.com

I’m I missing something here? If you ask me the FOMC’s comments were stronger than last month with regard to their oversight of inflation. Last month the FOMC said:

Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased.

June 25^th, 2008 FOMC Statement

Today’s statement appears to have turned up the tone on inflationary concerns by changing the rhetoric from “expectations have increased” to “are also of significant concern to the Committee.”

Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

August 5, 2008 FOMC Statement

They went from saying we “expect” inflation to increase to saying inflation risks are now of “significant concern”. This may not come out and say “we are going to raise rates” but it is a change in attitude since the last statement.

The Fed is well aware the inflationary pressure is coming from the commodity markets and they appear content to wait out the current correction before making a stronger statement on rate hikes but it does seem like a decent change in attitude to me.

One fairly sure bet at this point is that rate cuts are not on the table.

Disappointed traders may unwind the Dollar rally short term but I believe over the next quarter we will continue to see a stronger Dollar.

What do you think about today’s FOMC statement? Share you comments with us by clicking here.

Best of luck,

Ryan