Friday the core numbers for the month and the year came out favourably. Since the FED monitors the core cpi (due to oil price ) this strengthened the Greenback further. Later that day, Yellen stated she expects the economy to strengthen and reconfirmed a rate hike is likely this year. This language, the overall sentiment around the dollar of last week and the good reading could lead to this bullishness continuing in the coming sessions. The Canadian economy on the other hand is failing to gain traction, oil prices have not made any gains this month and the latest retail and numbers came out weaker than expected, weighing on their currency. All in all the Loonie gained 285 pips last week and I remain on this pair.
On the technical side, we have a bullish rectangle on the 4H timeframe (80-pip wide) and price broke to its upside Friday afternoon on the back of the strong US core cpi figures. It also broke above a . This could be an entry pattern for the continuation of the trend that started May 14th, when price reversed smack in the middle of a potential reversal zone (PRZ) consisting of the confluence of I) the lower of a daily , II) the of the leg that started July 2014 and III) a key level. Regular divergence pointed to underlying strength and the price rallied until it formed the aforementioned where a period of consolidation gave the oversold some relief.
After price broke out of the it started a retracement. My assumption is it will eventually retest the break out level, which will serve as support. Going long there (with the SL below the break out level) is a conservative way to enter the . The price movement is estimated by measuring the move of the leg prior to entering the consolidation and expanding it in the direction of the breakout. The projected move coincides with a key at 1.255. TP1 = the 1.24 handle and TP2 = 1.255. In terms of trade management, when TP1 is hit I would take profit on half of my position and roll my stop loss to breakeven, enjoying a risk free trade towards TP2.
There are 300 pips to be made (if this pair follows the script) and the trade has a reward – risk ratio of 7.5!