GBPCAD may bounce into FOMC
GBPCAD sold off from 1.8335 to 1.8005 due to a Brexit poll claiming that the “leave” side had a 10-point lead over the “Stay” camp. Two subsequent polls (by competing pollsters) have the race at a dead heat and GBPCAD has bounced. That suggests that there is plenty of room for a correction. And the correction may stem from position adjustments going into Wednesday's FOMC meeting.
Meanwhile, USDCAD has rejected the downside following a better-than-expected employment report on Friday. The mix of general US dollar strength and falling oil prices have driven USDCAD above resistance in the 1.2770 area which argues for additional gains toward 1.2900.
There is a ton of uncertainty around Wednesday’s FOMC meeting. Will the statement be hawkish, doveish or something in between? How will the new economic projections effect the rate outlook? These questions and more may keep USDCAD bid while GBPUSD bounces within a 1.4100-1.4500 Brexit-poll dominated range.
Arguably, a rethink of the weekend's poll results combined with a bid tone to USDCAD should lead to GBPCAD gains in the next couple of days.
Management and risk description
This trade is borderline “toxic”. GBPCAD is all over the map, often times with no rhyme or reason and due to its large ranges, the stop loss is very vulnerable. The stop will get triggered on a rebound of WTI prices or on another Brexit poll showing the “leave” camp with a big lead.
It is also very opportunistic. It expects to gain from USDCAD buying into the FOMC meeting while Brexit positioning profit-taking gives GBPCAD a lift.
This trade should be closed prior to the FOMC statement being released.
Trade idea parameters
Entry: buy ½ position of GBPCAD at market (currently 1.8215), balance at 1.8140.
Time horizon: two days-close before FOMC results.
GBPCAD 30-minute highlighting break of intraday downtrend and take profit
GBPCAD 4-hour with Fibonacci retracement levels
GBPCAD 5-year daily with moving averages
— Edited by Martin O'Rourke
Non-independent investment research disclaimer applies. Read more