The USD strength dominated last week’s Forex market yet again. The Greenback keeps displaying its power week after week and nothing seems to be stopping it. Will the USD go for a repeat and post another bullish week?
From a fundamental point of view the US Dollar is facing uncertainty on Wednesday when the FOMC releases its meeting minutes to the general public. Investors and traders then get a chance to judge whether the FED will raise its interest rates in the near future or not.
The key message to look for in the FOMC statement is the presence or removal of the word “patience” in connection with the timing of any interest rate hike. Here are the 2 main scenarios to keep in mind:
- Patience is removed from the statement: this indicates that an interest rate hike is coming closer to real implementation. With this step the last hurdle is removed and a rate hike could occur at any moment or at least within the next couple of statements.
- Patience is still mentioned in the statement: if the word patience is visible in the FOMC statement then any rate hike will certainly not occur within the next few months. The first step, before any rate hike will occur, is that the word patience is removed. If that does not happen, then the process of a rate increase has just been postponed.
The USD strength remains a good setup but will certainly get some extra momentum if the FOMC statement indicates an early rate hike. The main question then becomes: what other currency is best traded against the USD?
Let’s review the Forex Power Indicator to answer that question and here below we clearly see the CAD and EUR as the best candidates for USD longs.
From a technical point of view last week’s weekly candle was decisively bearish and left little room for reversal speculation.
When the weekly candles are so clear in their direction and momentum, then simply trading a retracement of the weekly candle is often a simple and an effective method of catching a part of the trend.
In such scenarios a retracement back to the 50% Fibonacci level (blue Fib) of the last week’s bearish candle with a stop loss above the candle high would be a decent probability setup.
The main targets of the downtrend continuation are the -27.2% and -61.8% Fibonacci levels at 1.0340 and 1.0180 (see 4-hour chart below).
The trade setup is nothing fancy and in fact pretty simple but those are actually the best ones… do you agree?
The same approach can be applied to the USDCAD. A pullback to any of the support Fibonacci levels could provide a great option with the trend setup. In this case it would be a classical break (of the bigger top indicated by the magenta line), pullback and continuation.
The Fibonacci retracements such as the 50% and 61.8% are the main and primary entry spots for a USDCAD long, with a stop loss below the bottom and a target aimed at -27.2% Fibonacci level of 1.2881.
What do you think of these setups?
What do you expect with the FOMC?
Check out this week’s trading room to see if any of these setups do indeed occur!
Let us know down below!
Thanks for sharing and Happy Hunting!
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