As the ECB’s rate decision and press conferences are not removed, tomorrow’s (Friday) labor market data in the US and Canada could end the week at a high with some volatile market volatility.
The ECB has launched certain measures today, but not nearly as much as I have seen in the past. I have to say, the market isn’t as active as I’d like, and the really great trends aren’t too rich right now. Let’s look at a few instruments, starting with USD / CAD:
USD / CAD – What powerful progress!
What remarkable progress on USD / CAD! This is a pretty long wave in terms of time and distance. This should serve as a warning to traders who are interested in entering long positions at this late stage. You see, the price has moved quite a bit away from the average (introduced by the 20-EMA) and the pair is fast approaching an important resistance zone where we can expect bulls to get some earnings and even some short bear sales. Now, whether it’s the bulls making money or the bears on short sale, the effect is the same: the U.S. dollar will sell against the Canadian. Needless to say, these actions will affect the USD / CAD exchange rate.
Let’s not forget that courses can move in one direction for extended periods of time. This is important to keep in mind because while it seems like this pair could run out soon, it doesn’t mean we should suddenly start looking for sales opportunities. When we see strong bullish momentum as in this case with USD / CAD, we have to respect that momentum until we come across a valid reversal signal. If you asked a little boy how to ride a fast train, he would surely conclude that the train would have to stop first. The same is true with strong impulsive moves like this on USD / CAD. The average daily turnover on USD / CAD is about 275 billion USD. Think of it this way, behind this last bullish wave stands tremendous weight and momentum; it will not necessarily stop here just because it is approaching an important zone of resistance and because it has become really overcrowded. Do you think you have the resources to resist that kind of order? Maybe, but probably not. Whether you are buying or selling a particular currency pair, it is generally better to wait for the current momentum (if it is very aggressive) to slow down before entering with or against it. Going against the swing is obviously more technical and requires a lot of experience and a solid signal for a turnaround.
So what approach should we use when trading this pair? The bullish momentum is still intact, so our bias should be bullish. However, if you want to buy this pair now, you need to be aware that a reversal or correction is more likely with each new bull day that is printed. This type of progress also slows as it approaches an important resistance zone.
We need to trade the settings with a high probability. These settings generally occur closer to the trend average. Therefore, it would be better to wait for the current momentum to slow down and give the 20-EMA a chance to catch up. Then applications can be taken at or near the 20-EMA if it is observed that this exponential moving average is held as dynamic support (or resistance). How will we know if this is the case? If we see that the price declines the EMA and prints satisfactory candles to confirm this rejection, it will give us a good clue. Of course, we can use the triggers on smaller time frames, but only if they are in line with the technical data on the daily chart.
The price of oil has been falling aggressively in the last two days. This also penalized the Canadian dollar. Watch out for the price of oil if you trade the Canadian dollar: these two are highly correlated.
On Friday, the expected US report on non-payment payrolls could cause significant instability in the foreign exchange market. Canada will also release labor market data at exactly the same time (13:30 GMT). This will make USD / CAD trading interesting on the day. If we get a really big number out of the US and a really bad number out of Canada, USD / CAD could be the perfect pair for a dollar to buy.
The ADP number of changes in agricultural employment released on Wednesday is often a good indicator of how NFP numbers will pass two days later. Now this number was really great and reached 298,000 new jobs compared to the expected reading of 190,000. Really impressive, right? Perhaps the NFP figures this month will be really great, which would further set market expectations for a new increase in U.S. interest rates next week on Wednesday (March 15th). Let’s see what happens tomorrow.
AUD / USD – ‘Down’ 200-MA again
AUD / USD has fallen, as expected, in recent days. This happened after the pair recently traded straight into an important resistance zone. I personally traded this setting and entered it on February 28th. Check out this daily chart:
It’s good to see this pair trading again below their 200-day moving average. The price is also relatively far below the 20-day exponential moving average, testifying to its strong short-lived bearish momentum.
It certainly seems that we could expect a further decline of this pair in the next few weeks. If you’re also briefly exposed to this pair, be careful with the NFP report tomorrow. Be sure to manage your risk carefully.
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Have a nice NFP Friday!