Steen Jakobsen
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Strategic trade
Trade view / 06 July 2016 at 9:04 GMT

#SaxoStrats: USDCAD to test 200-day average?

Head of FX Strategy / Saxo Bank

The US dollar is showing signs of strength again and appears to be overtaking the euro as a safe haven, possibly on collateral damage from the Brexit vote into Europe. Recent market turmoil sparked by the UK ballot has also weakened riskier currencies as well as commodity currencies like CAD. 
With further market turmoil ahead on concerns over Brexit – some measure of pricing in a coming existential crisis for the European Union, or at least a challenge – the market may generally prefer the US dollar as a safe haven (even if the JPY proves a stronger but more volatile one.)

USDCAD is showing signs of stabilising after the steep Q1 selloff and is technically primed for a fresh rally on a break higher (see the chart below).

Longer term concerns on the overleveraged Canadian economy and its structural shortcomings (and wide current account deficit) point to underperformance whether the US economy regains strength or even if it weakens further.

Management and risk description

Risks to the trade include a strong rally in crude oil prices or particularly bad US data this week, which could derail the USD rally and see CAD powering back stronger within the range.


USDCAD daily:
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Source: Saxo Bank 

USDCAD weekly (five-year; note the recent stabilisation after the steep Q1 slide):
Source: Saxo Bank 


Entry: 1.30-1.3030.

Stop: 1.2935.

Target: 1.3300.

— Edited by Michael McKenna

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