It�s a very dangerous proposition to trade any dollar-based major at this point; and it is especially risky to fade the currency�s steady bear trend. Therefore, as a clear disclaimer, the USDCAD range setup is only for those that are highly risk tolerant.
[B]How stable is the USDCAD Range?[/B]
[B][/B]
· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 1.1100 (Fibs, Pivot)[/B]
[B]-Range Bottom: 1.0660 (Fib, Double Bottom)[/B]
· While the health of the US and Canadian economies are tightly intertwined, USDCAD is still prone to the large fundamental themes that have battered the greenback over the past months. General risk trends and concern for carry interest (the dollar has the lowest market rate among the majors) are key concerns, while growth speculation is taking a back seat. Scheduled fundamental event risk is a significant concern until after the weekend.
[B][/B]
· Congestion may be a frequent pace for USDCAD; but there are rarely straightforward technical levels to work with for range setups. The 1.0650/75 floor that we are now upon is therefore questionable for its influence. This is a long-term 61.8% Fib of the 2007- 2008 rally and double bottom with the early August swing low, but it is still questionable.
[B][I]Suggested Strategy[/I][/B]
[B][/B]
· [B][U]Long[/U][/B][B]: Entry orders set at 1.0665 are aggressive, but the current level of spot makes it reasonable.[/B]
· [B][U]Stop[/U][/B][B]: We want a stop that prevents too much risk on a true breakdown, and 1.0595 should do. To secure profit, move the stop on the second lot to breakeven when the first target hits.[/B]
· [B][U]Target[/U][/B][B]: The first objective [/B][B]is twice as large as risk (140) at 1.0805. The second is 1.0975. [/B]
[B]Trading Tip[/B] – It’s a very dangerous proposition to trade any dollar-based major at this point; and it is especially risky to fade the currency’s steady bear trend. Therefore, as a clear disclaimer, the USDCAD range setup is only for those that are highly risk tolerant. On a trade-weighted basis, the US dollar has been pushed to yet another yearly low; and prominent technical boundaries on specific currency pairs are building up the pressure to a volatile resolution (breakout or reversal). The most significant level among the majors is the EURUSD double top with the December reversal at 1.4735; but we also have a double bottom on USDCAD around 1.0650/75. Fundamentally, this pair is somewhat harbored from the more volatile influences on the dollar as of late. Considering the tight economic and financial ties between the dependent trade partners, speculation on growth potential and the interest rate forecast is rounded out. On the other hand, should there be a significant shift in the US dollar across the market; USDCAD can easily be caught in the crossfire. As for our strategy, we are in essence attempting to call a double bottom and reversal when many majors are struggling; so this isn’t a trade specific to USDCAD but essentially a dollar trade. This requires a setup with a close entry, tight stop and reasonable risk to reward. Our first target covers the risk on a two part position and the second looks for much more intensive retracement. We should see a breakout or meaningful reversal soon (as the market does not linger at such extremes for long); so we will cancel all open orders by week’s end.
[B]Event Risk for the US and Canada [/B]
[B]US [/B]– The US dollar has been pushed to its lowest levels in nearly a year due to a combination of factors. The most influential fundamental considerations however are tied to the currency’s status in the FX market and the ever-shifting tides of risk appetite. Through the worst of the financial crisis at the end of 2008, the US dollar was prized for its liquidity (or more precisely the liquidity of the Treasury market and other ‘risk-free’ asset classes). However, with fear subsiding and demand for yield in a steady climb; capital that was sidelined is now being redistributed to countries with greater potential for short-term returns. This will be the primary concern over the coming days and weeks; and in this vein, we will find trend from the health of equity and other speculative markets rather than the release of specific event risk and its influence on growth forecasts. Nonetheless, we have a few notable events over the coming week to take note of for short-term volatility and offer minor adjustments on growth forecasts. Housing starts, existing home sales and leading indicators are all second tier indicators; whereas the FOMC decision holds real potential. Look at the comments rather than the rate.
[B]Canada [/B]– Like most major currencies, the Canadian dollar is caught up in the high and low tides of risk appetite. However, the loonie is on the same level as say the US or Australian dollar. The BoC’s benchmark lending rate is set to a low 0.25 percent; but the currency is not considered an ideal funding currency as the relatively stable economy and financial markets offer a better foundation for a return to rate hikes. Instead, watch key event risk next week. The CPI and retail sales numbers are particular market movers.
[B]Data for September 17 – September 24[/B]
[B][/B]
[B]Data for September 17 – September 24[/B]
[B]Date (GMT)[/B]
[B]US Economic Data[/B]
[B][/B]
[B]Date (GMT)[/B]
[B]Canada Economic Data[/B]
Sep 17
Housing Starts (AUG)
[B][/B]
Sep 17
CPI (AUG)
Sep 21
Leading Indicators (AUG)
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Sep 17
Leading Indicators (AUG)
Sep 23
FOMC Rate Decision
[B][/B]
Sep 21
International Securities Transactions (JUL)
Sep 24
Existing Home Sales (AUG)
[B][/B]
Sep 22
Retail Sales (JUL)