Trade of the Week | October 15-19, 2012

Most of my previous Trade of the Week (TOTW) posts have featured trades involving entries during the New York or London trading sessions. Not this time. The Asian session has rightfully earned the TOTW spotlight for the five-day span covering 15-19 October. A real beaut of an entry for a loonie short position came together on multiple currency pairs during the Thursday 18 October Tokyo morning hours.

In this post, I discussed the 16 October Canadian dollar sell-off and referenced one possible contributing factor: the Bank of Canada's latest Business Outlook Survey released the day prior. About twenty-one hours after I posted "Southbound Loonie", as Thursday's 18 October Asian session was getting underway, Canada's currency was at technical resistance against multiple major currencies. The EUR/CAD price, for example, was near 1.28, a so-called psychological level which had previously defined the 17 September and 4 October highs (identified with blue arrows on the chart below). Two other sources of prospective support for the EUR/CAD were also present near 1.28 at Thursday's Asian open, namely the 4-hour 21 ema and the 38.2 percent Fibonacci retracement level of the previous rise from low #1 to high #2.

The 0.9770 area had affected the USD/CAD price on multiple occasions over the previous eight trading days. The pair was less than 15 pips above that key level at the start of the 18 October Asian trading session.

FX traders who shorted the Canadian dollar during Thursday's Asian session were rewarded with a two-day loonie sell-off. The USD/CAD price rose more than 170 pips from its Thursday Asian session low before the end of the European trading week, while EUR/CAD returned to its highs near the 1.2935 level established earlier in the week.