Short term
Trade view / 19 September 2016 at 12:00 GMT

Loonie may feed on oil hawks, Fed doves

FX Consultant / IFXA Ltd
Canada
Background 

USDCAD has already retraced all of Friday’s post-US CPI gains on rising oil prices and dovish Federal Reserve sentiment. There is probably more downside ahead.

The intraday USDCAD technicals snapped a 10-day rally this morning with the decisive break below the uptrend line at 1.3180. That break provides scope for additional downside toward the 1.3000 pivot area. In addition, once again attempts to break through topside resistance have failed, which may unnerve USDCAD bulls.

Wednesday’s Federal Open Market Committee meeting should spark renewed USDCAD selling if the statement is less hawkish-sounding than expected or if there is disappointment in the economic projections.

USDCAD may be undermined further by new rumours of some sort of an Opec price stabilisation agreement on September 27. 

The prospect of a dovish Fed, the risk of a rumour-fuelled oil rally combined with bearish technicals argues for a weaker USDCAD in the coming days.

Management and risk description 

This is a really risky trade. USDCAD is vulnerable to hawkish Fed rhetoric or reports of ongoing Opec dissent. Either or both events would trigger the stop loss. It is also a very short term predicated trade, in part because USDCAD has been unable to break above 1.3245 (and may be due to revisit the bottom of the range).

Conservative traders may consider just waiting for the second sell level to be triggered to enter the trade, and raising the stop loss to 1.3260 (just above 200-day moving average), greatly reducing the loss if this idea goes bad.

Parameters

Entry: sell ½ USDCAD at market (1.3170) balance at 1.3220.

Stop: 1.3248.

Target: 1.3040.

Time horizon: four days.

USDCAD 30-minute showing break of uptrend and new downtrend:
usdcad
Source: Saxo Bank 

USDCAD one-hour with stop-loss and take-profit shown:
 
usdcad
Source: Saxo Bank 

USDCAD five-year daily with moving averages:
usdcad
Source: Saxo Bank

— Edited by Michael McKenna

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Non-independent investment research disclaimer applies. Read more
20 September
Michael O'Neill Michael O'Neill
Pheww! Bullet dodged this morning. USDCAD stalled below stop loss level. It makes sense to raise the stop loss to 1.3262, just above the 200 day moving average
21 September
Michael O'Neill Michael O'Neill
UPDATE: This trade idea dodged a bullet. USDCAD came close to triggering the stop loss yesterday following as WTI prices sank. Then it got a reprieve. The report that the Opec General Secretary was talking about a 1 year duration for an agreement that hadn't even been signed combined with the steep drawdown in API crude inventories boosted WTI and crushed USDCAD.

The second order was filled for an average rate on this trade of 1.3195.

Take profit on 1/2 the position at market (1.3160) for a gain of .0035 points

Lower the stop loss on the balance to break even and hope that today's EIA report corroborates the API findings.
21 September
Estuardorlemus Estuardorlemus
You have a good risk management. ;)

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