Today provided an amazing day for currency traders with moves in the GBP and CAD. The GBP/USD and GBP/JPY both almost doubled their respective 14-period ATR on the daily chart. This move was a combination of not only strong dollar news starting at 8:30 am EST, but also good old-fashioned technical analysis. If you know and believe the acronym K.I.S.S like I do, your hardest decision last night would have been choosing between a binary or a spread in the upward direction. When we have a well-defined channel, based off clear and simple to see support and resistance, one must look for an entry in the lower or upper areas of the channel. If you add in a round number like 1.3100 (Something that is VERY physiological for computers and humans alike) you start stacking the odds in your favor. Look below at how it unfolded on the 3-Hour chart. What traders will be looking at next is where the top of the current channel is. Many many times these same explosions in price will give us the retrace back to its origins, in this case back into the 1.3100 area. If you haven’t looked at the spread strikes yet for tonight, take a look and weigh your risk: reward options and ask yourself have your rules all been met; if yes, execute your plan. Had price broken the channel, you could have also played it on the short side and that’s why having low-risk entries is so important
The CAD conversely took a major hit on a day due to 4 separate high profile news releases in one day. If you are a breakout trader like I am, today is the type of day you live for. The USD/CAD had a range of 160 pips in the hourly candle starting at 10 am when the BOC Rate Statement came out. This provides an interesting situation for many traders especially those using multiple timeframes in their analysis. We have a confirmed up trade on the daily chart but also the top edge of resistance from a channel started back on 7/12/2017. Being just over, many traders could have gotten long with the break above the channel but they must be careful as the burst Thursday was news based. Could a retrace back down to 1.2700 be possible? The answer is simple, of course, it can and how would someone prepare for that? The common belief is that when it breaks below the pullback area around 1.2780 it’s a signal to get short. Thus far the USD/CAD hasn’t shown its hand yet and we need a confirmation before just blindly jumping in.
With the overnight spread of USD/CAD (3 pm) 1.2540-1.2790 you are in an ideal position to get that confirmation if the market starts to collapse. Conversely, a 1.2790-1.3040 could be played to the topside when you have upside confirmation. With no CAD news tomorrow, this move will have to get some assistance from the USD Unemployment news at 8:30 am EST.