Torn

I am very torn on this trade. We discussed the USD/CAD from the view that it could be in a bear flag but I expected a bigger move to the top side. Well it broke out of the bear flag we were watching and bounced off the 1.0000 level, proving a worthy foe to my bearish stance. Now that it has bounced, what do I really expect? A retest, maybe. A break down, probable. A bullish run, not likely but possible.

The interesting thing about this trade is that even though the price has dropped nearly 40 pips from yesterday, our put doesn't really cost us anymore than what we were looking at. So there is the dilemma. Do I take a short position now or wait for a bounce higher. I favor a bounce higher, this bear flag confirmation with a bounce off of the 1.000 level is exactly why I don't like trading break outs. I like selling resistances. The put would allow me to just buy the put, take the same basic trade, allow it to run for nearly 8 weeks with no more worry than a 150 pip stop max. That is very promising but now I have to wait until the morning to buy my put.

Fundamentally, New Homes came in worse than expected and the Fed dumped 40 billion on the market, both should have trounced the dollar, but instead the dollar held it's fleeting foothold. Tomorrow GDP for the CAD comes out, I wouldn't be surprised by a better than expected GDP and a worse than expected on the CPI from the USD both potential catalysts to break this pair out for another run, to be seen in the morning. If you are going to trade the put you will have to be right at your computer when the market opens, if you are trading the spot, watch for a retest near 1.0060ish.