Remember when I had parity trade ideas on BOTH the Aussie and the Loonie? Well, I managed to save at least one trade! Luckily, one good decision was all it took to avoid losing pips on this trade.
Just before the FOMC report was released last week, my friends and I had been watching USD/CAD inch its way towards parity. Since we figured that the FOMC statement will be a big market mover, I decided to hold off making limit orders until the pair finds a direction AFTER the FOMC report is released.
Good thing I didn’t put up any orders! The Fed’s decision to only implement Operation Twist AND downgrade its economic forecast weighed heavily on risk sentiment, which catapulted USD/CAD through parity like it was a cork on a champagne bottle. My stop loss would’ve been hit in a few hours!
I think I got lucky this time around, but hopefully, I’ll be able to make good decisions on my next trades. Of course, it helps a lot that you guys are sharing your thoughts! In the meantime though, let’s move on and look for our 10:1 risk trades! Spot anything yet? I’ll be right here on one of the links.
Let’s do this!
Trade Idea
I’m back with another parity trade idea, and this time it’s with USD/CAD! Since I stood by the sidelines the last time USD/CAD hit parity and yielded a 4:1 reward-to-risk trade, I’m not passing up a second chance!
On the 4-hour chart we can see that 1.0000 has served as an effective resistance, so much so that it served as the top of a range. I know that Stochastic has already reached the overbought region, but it also doesn’t look like it’s falling anytime soon. Will the pre-FOMC volatility take the pair all the way to parity?
Speaking of the FOMC statement, my fundamental reason for shorting the pair is the dollar weakness that followed the last FOMC statement that market expectations had been this high (think November). If the Fed hints at more economic stimulus as markets are expecting, then we might see a rally in high-yielding assets. But if the Fed disappoints, or if the optimism is already priced in after all, then USD/CAD just might break the important psychological level.Right now I’m planning to short at 1.0000, place my stop loss above the weekend gap and the 1.0050 handle, and then aim for last week’s low near the .9800 area. To avoid the crazy volatility before and right after the FOMC report, I plan on manually entering the trade as soon as I think the market players have settled down and analyzed the latest Fed actions.
What do you think of my trade idea? Any tweaks you’d like to suggest?
Happy Trading!
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