The Canadian Dollar is extremely prone to volatility when oil and shale go on a charge. USOIL is at a low right now and does seem to be bouncing off support. In the United States, we cannot trade oil, gold, and silver over the counter as some people can in other countries. However, with the relationship between oil and the CAD we can make possibly look for setups on the CAD crosses in the Forex market. The targets we have on US OIL are to the north side around $50.00 and with USOIL currently at around $44.60 that is a lot of room to run if oil does break to the northside.
Now what I would like you to notice about the targets in this oil chart is that the yearly has just been recently hit as well as the weekly target for this week. The daily targets are also about to be struck. Now, these targets are the only things holding price this low short term. The monthly target is to the north, and this would be the next high priority target for this week — and it’s Monday…
Let’s take a look at the USD/CAD chart on the 2-hour and see what seems to be the situation to the downside. If we see oil as possibly going north this week to $50.00, we would want to look at the USD/CAD chart showing us signs of potentially selling off. As the CAD gets stronger with oil and shale prices, the USD/CAD should go south. Do we see any targets on the USD/CAD chart that might support this thinking?
WOW! We just hit a D extension for the current upswing. In addition, we have broken and started to test the backside of an established up inner trend line. In addition to that factor, we are at a .50 on the pullback fib scale. Again this could be a great downside trade if oil does what we think it may do. But, what would be the entry plan on something like this?
I am looking for a slightly deeper pull back to the .618 and I am waiting to short only until after the price has gone below 1.37354 and my stop is 25 pips above the old D extension from the prior swing. I am using the SUB SWING D extension as my exit plan, which coincidentally happens to line up with the monthly target price. This seems like a great opportunity to risk 75 pips and go for 200+ pips in reward.
Again we have two factors governing this trade and we get a nice leading indicator in the USOIL chart. Don’t just look at the lower set up and run with it. That is not how this particular strategy is planned out. We need the currency chart to reflect what is happening in the USOIL chart before we enter.
Good luck — and I hope this helps you make better sense of the market this week!