A Forex View From Afar

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Forex Analysis

Trading the Canadian Dollar

Written by A Forex View From Afar on Monday, September 29, 2008

The Cad has a unique trading style, moving only one third of the trading day, during the U.S. session. For the rest of the time, the pair tends to hover around a price level, be it the neutral pivot point, a moving average or a support/resistance level. Lately, however, the Cad has started to move during the overnight sessions as well, but the volume continues to be low and insignificant.

The daily chart shows little signs of dollar strength, even though the dollar has posted strong gains against its European counter-parts. This suggests the pair may not have too much room to run on the upside. The 1.0500 area may be a key resistance level in the future, as it has in the past, and long orders should come after this level is broken.

Regarding future short positions, the cad will first have to break below the 1.0300 level, which is an important swing point. At this level, the resistance area (which has now become support) held for over 9 months in which the cad was unable to close above. Having crude oil, the commodity that back’s the cad valuation, holding around the $100 level, we may see some additional tests below the 1.0300 level. The intra-day pattern of trading shows that it is better to avoid any short-term trades around the U.S. session open, when we often see a wave of orders hit the market.

This week, the only important news release coming out of Canada will be the GDP read for the third quarter. The market is expecting a 0.2% read, while the second quarter GDP was released at 0.1%. A read that deviates from market expectations will certainly move the market and test the closest support or resistance, depending on the news release.

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Fundies and Trading
There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

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