The USD/CAD pair had a strong showing on Friday, attempting to break through the 1.01 level. However, as it has done several times recently it failed. The one thing that does give me caution about shorting this pair is the fact that the lows are getting higher recently, and it does seem like a relentless attempt to breakout.
However, there is also the school father the 1.01 level offers a bit of a backstop if you're selling, and a natural place to get out if he gets broken to the upside. Because of this, I am actually willing to start selling, but recognize that it is a somewhat risky trade. With that in mind, I am only trading with one half of the normal position size to the short side.
1.01 will be the key
If the market does get above 1.01 on a daily close, it should find the path to 1.04 open. With that in mind, I wouldn't hesitate to get out of the trade and reverse it, something I almost never do. This is because the area is that important on a long enough time frame that it will attract a lot of traders to enter the market.
On the other hand, the short side does offer the possibility of a move down to the 0.98 handle before it's all said and done. With that in mind, I almost feel like there are roughly 300 pips to be had, I just have to figure out which direction the market once the given to me in. With a set up like this, you can often be wrong at first, only to be proven right later and make a profit in the end anyways.
In the chart I see the possibility of losing roughly 75 pips if I short it, but making 250 if I'm correct. It's the same type of set up to the upside, on a daily close above 1.01, I would assume that the risk would be about the same. Because of this, I will be trading this pair, and possibly in both directions over the next couple sessions.