USD/CAD - Trend Reversal at Play after US Q2 GDP Data

Yesterday, USD/CAD came up to a key level around 1.0835-50. Here it was testing a falling trendline, and the daily RSI was challenging 60. Today, after the strong US Q2 GDP data, USD rallied across the board, and USD/CAD is clearing the falling trendline, while pulling the RSI near 70, a sign of bullish momentum. There seems to be one more hurdle to cross to complete a reversal signal. The 1.09 area and 100-day SMA is the final challenge today.

USD/CAD Daily Chart 7/30

(click to enlarge)

If price holds below 1.09, I would not necessarily dismiss the bullish outlook. Only a break below 1.07 at this point would convince me that bears are still in charge in this market. If price retreats, I would look for support in the 1.0750 area.

If price can push above 1.09, it opens up first the 1.0950-60 resistance pivot area, followed by the next resistance pivot at 1.1050. Then, it opens up to toward the 1.1278 high.

Again, during this ascent, we should be looking for a pullback as an opportunity for buyers. Let's examine one such scenario:

USD/CAD 4H Chart 7/30

(click to enlarge)

The 4H chart shows a market that is bullish from the perspective of price action, moving averages, and the RSI. Let's say we get a pullback. How can we anticipate this as a opportunity for buyers?

Price/Moving Averages: If price comes down tot eh 1.0760-1.0780 area, it will likely be testing the rising trendline. We also start to get into the area of the moving averages and the highs from an earlier consolidation.
RSI: If the RSI comes back to 40, a bullish market should keep the reading above and a bullish continuation attempt should follow.

Therefore, let's consider a long entry at 1.0770, with the condition that the 4H RSI holds above then turns up from 40. A break below 1.0740 is likely to end the bullish outlook and put USD/CAD in either a sideways or bearish mode. A stop at 1.0730 would give us a 40-pip risk.  A conservative target is the 1.09 handle, but an aggressive one should be limited to 1.0950 for now. This gives us a conservative reward potential of 130 pips, and an aggressive reward potential of 180 pips.

The reward to risk is therefore from a slightly better than 3:1 to 4.5:1. What if you decide you want to give it more elbow space and place the top below 1.07, let's say 1.0690. That would give you a risk of 80 pips, which is a slightly better than 1.5:1 conservative reward to risk, and about a 2.25:1 aggressive reward to risk.