It is make-or-break time for the USD/CAD. The bearish pressure that we have seen over the past three months is being vigorously challenged. The result of the action is an opportunity for a trade.

Breaking Down The Technicals

First things first. The USD/CAD currently resides in an interesting technical area, trading just over the 13-day SMA, the 20-day EMA and under the Bollinger midpoint on the daily timeframe.

Daily USD/CAD Chart- Convergence

This is certainly a pivotal technical area. Trading beneath Monday’s low will give credence to the continuation of the long-term bearish outlook on the USD/CAD. But, if the current daily buying pressure holds, we could see a run towards 1.2800.

As of now, there are many reasons to go long from the current market 1.2650-1.2675:

1. Considerable Support: Backside support with the 20-day EMA and the 13-day SMA

2. SMA/Bollinger MP Crossover: As I mentioned yesterday, the MP has crossed the SMA for the first time since May. This is a sign of a change in the prevailing trend.

3. Crude Oil Pricing: The coming U.S. crude oil inventory reports for this week are likely to bolster participation in the USD/CAD. This can be either good or bad for the trade, but increased participation will drive the market.

4. Concrete Stop Loss: A stop under Monday’s low of 1.2629 gives us confirmation that the current buying pressure has subsided.

Bottom Line: As a general rule, I am a big fan of convergence. When various technicals come together, we can build a case for healthy support/resistance and bolstered market participation.

The trade is to be long on the USD/CAD until proven otherwise. Using a concrete stop out point beneath Monday’s low of 1.2629 gives us the SMA and EMA as support levels. Looking for a second test of 1.2714 produces a 1.5:1 payout depending upon exact entry at current market (1.2650-75).

Affordability is an important aspect of any trade. The presence of a concrete stop and a potential increase in participation have me convinced to long the USD/CAD, at least for the U.S. session.