Yesterday was almost a repetition of last Monday when we saw quite a few inside daily candles across the FX market. The only notable mover was the USD/CAD (Canadian Dollar), which made an important technical breakout of the triangle formation in which it had been trading for several weeks. The reason for the CAD weakness probably being the plunge in oil prices yesterday. The CAD is highly correlated to oil prices because the Canadian economy is very reliant on oil production and export. I wrote about the USD/CAD last week, and stated that I anticipated an upward breakout out of this triangle / wedge formation, but it happened a bit sooner than I expected. Let's look at the USD/CAD daily chart:

USD/CAD Daily Chart

If we see continued US Dollar strength and oil weakness over the near-term, this pair could rocket much higher. Although I already have a long position on this pair, I would still like to wait for a retest of the breakout level to add another long position. I will watch 1.31250 to be tested again. The chart below is pretty similar to the one I shared on 19 July:

USD/CAD Daily Chart

While there is a lot of momentum in this pair at the moment, it is wise not to chase the market and enter at these high prices, but to wait for a better deal to come by.

On an intraday basis, shorter term traders might be able to catch a few dollars by buying weak corrective pullbacks to, for example, the 20 EMA (blue moving average) on an hourly chart. A quick in-and-out move might just do the trick to get the last bit of momentum out of the pair before the bulls get exhausted. See the hourly chart below:

USD/CAD 1 Hour Chart

Just be cautioned that we have seen 7 consecutive blue daily candles on this pair and that from a cyclical point of view, a correction might be approaching soon. My preferred trade would still be the breakout re-test as demonstrated on the daily chart.

I don’t think we will see a lot of fireworks today, with market players probably keeping some powder dry for later in the week when we have the more important news releases. (Probably the most important data to be released today is the July USD Consumer Confidence reading).  The FOMC meeting on Wednesday will definitely be watched very closely, to see how the FED will react to the current risks that threaten the global economy.  The FED is expected to keep interest rates unchanged, however.

Then we also have Japanese rate decisions later this week, as well as GDP readings from various countries, with CPI readings here and there.

The Greenback (USD) has performed very well these last few days, and I wouldn’t recommend fighting its momentum today, or even later in the week, except if we get a major shift in market sentiment and we see fundamentals change notably. Look at the chart below:

USDOLLAR Index Daily Chart

This index is composed of the US Dollar against four currencies – the JPY, GBP, AUD, and EUR. The USD is clearly outperforming its major counterparts, and perhaps we might be able to utilize its strength today, and in the coming days.

Just be very careful this week as markets might become very turbulent with all the major events coming up.