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Short term
Trade view / 08 June 2016 at 13:16 GMT

Squeezing blood from a stone in USDCAD

FX Consultant / IFXA Ltd
Canada
Instrument: USDCAD
Price target:
Market price:
Background

The mix of higher China oil imports, crude stocks drawdowns and supply disruptions from Nigeria have given WTI a huge boost and the Loonie is along for the ride. USDCAD has also been undermined by the diminished rate hike expectations for June and July.

The intraday USDCAD technicals are bearish following the break of support at 1.2900 and 1.2735.  USDCAD is sitting just above the key 1.2660 support level and if it breaks it is a one-way ticket to the May low.

The Bank of Canada is firmly in neutral which diminishes the impact of domestic data. Friday’s employment data will be incomplete due to the Alberta wildfires and therefore a non-factor for traders.

The USDCAD decline has been steep but the door is wide open for further losses.


Management and risk description

This is a risky trade and not for the faint of heart.  It appears that most of the “easy” money has been made and we are attempting to squeeze blood from a stone. This trade is also a WTI trade. If oil rises it should work.  If oil declines it won’t. The trade is vulnerable to improving US rate hike sentiment which would boost the US dollar versus the majors and likely trigger the stop.


Parameters

Entry
: Sell USDCAD at market 1.2658

Stop: 1.2740

Target: 1.2475

Time horizon: 5 days


Chart USDCAD 1 hour showing break of key support
usdcad
 Source: Saxo Bank

Chart USDCAD 4 hour with Fibonacci
usdcad
 Source: Saxo Bank

Chart: USDCAD 5 year daily with moving averages
usdcad
Source: Saxo Bank

— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more
08 June
Michael O'Neill Michael O'Neill
The entry level on this trade is lousy. It is a much better idea at the current 1. 2685 level.
08 June
fxtime fxtime
LOL....my guess is that you had to make a post here by a certain time hence your trade entry but the underlying move as you rightly say is down so bear traders will be fed :-)
08 June
Michael O'Neill Michael O'Neill
Fxtime I started writing that idea and funds were 1.2710. A client called and I got sidetracked. I know I shouldn't have chased it but I liked the direction
08 June
fxtime fxtime
LOL....we've all been there :-)
08 June
John Roberti John Roberti
dear Michael. With all the talks of possible bad figures from EIA, I certainly understand that your proposal was a real possibility and now that the data are fairly bearish for oil, it may be less probable to witness usdcad at 1,25 but I was long on USDCAD at 1,29 before FED data and thus I protected myself until tomorrow at 1,2675, If the market really consider the EIA report as bearish and oil really decline then I will reopen my position. but so far, it looks yoyo!
08 June
Michael O'Neill Michael O'Neill
The EIA showed a healthy draw-down of 3.2 m/b but the increase of a mere 100k barrels in US production seems to have triggered some profit taking. Technically, oil's break above $51/b is bullish and sets up a test of $53.85. Dips should be contained around $50.00. So this trade still lives. Like I said earlier, this trade is a much better trade selling at 1.2685 then 1.2658. I am seriously contemplating updating the idea to add at 1.2750 with a stop loss at 1.2782
08 June
Andrei14 Andrei14
Michael, good afternoon! I monitor your updates in transactions. I consider them reasonable and rather competent.
08 June
John Roberti John Roberti
Please my comments were not at all a criticism for your proposal! Just showing how difficult this market is. So far the trend after EIA figures does not look bearish! At best the market may decide tomorrow that the present is level 51,00 is OK until some news on the glut front come in from another area (for instance, new level of production from Alberta, or partial resumption of oil production in Nigeria, or a catastrophe in Venezuela!) This being said, I wouldn't dare to believe in further decline if the market reaches 1,2750 tomorrow, unless this is without a slight decline in oil prices. Thanks for your often good proposals
08 June
John Roberti John Roberti
let's not forget that not only us Oil production does not decline, but consumption of gasoline does! That the US let the stock decline, makes a lot off sense since stock is at never experienced historical level ands somebody has to pay for the charges
08 June
Hisham Boulos Hisham Boulos
I think we are going back to 1.275 .. oil to 50 .. will it continue down .. based on oil stock increase news !!! I was short at 1.28 and closed position now ..
08 June
Corto Maltese Corto Maltese
hi Michael, so you would move the SL at 1.2782 now ?
08 June
Michael O'Neill Michael O'Neill
Hi John: Roberti I didn't take your comments for criticism, at all. But feel free to criticize any of my trade idea's or comments. I am always open to different ideas and perspectives.. This trade is merely a short term, opportunistic punt. Like I said, I would be a lot happier with the idea if I had sold at 1.2710 this morning. Having said that, $51.00 capped WTI since July 2015. Now that its broken it opens the door to 54.00. If that happens ( soon) this trade is a winner. If not, it will get stopped.
08 June
Michael O'Neill Michael O'Neill
Hi Corto: It depends on you and your risk tolerance. 1.2782 should be high enough that you won't get stopped out on a spike. So, for me yes. Incidentally, It is rather interesting that after breaking below 1.2740, and touching 1.2660, the subsequent rally has been unimpressive.
08 June
Hisham Boulos Hisham Boulos
Hi Mike .. what is the story with the oil stock .. any reported shortage .. that may change the direction to the 54?
08 June
Michael O'Neill Michael O'Neill
Hi Hisham> Good trade for you. If we go back to 1.2750, its a sell. If we go above 1.2782, I'm out to lunch
08 June
Hisham Boulos Hisham Boulos
LOL but is there a shortage in oil reported ?
08 June
Hisham Boulos Hisham Boulos
I mean over supply :( sorry
08 June
Michael O'Neill Michael O'Neill
Oil supply/shortages are more exclusionary than anything else mainly because there is not a truly accurate, quantifiable method of measuring production, etc. Everything you see, EIA< API, and even Opec are just best guesses. If oil traders think there is a shortage, oil goes up right until they think there is oversupply. And unless the data and reports of a massive oversupply of crude for the past 12 months are bogus, what has occurred to reduce the supply? in my opin ion, not much.
However, if oil traders want to buy oil and the technicals support the uptrend, I'm just going with the flow.
08 June
Hisham Boulos Hisham Boulos
OK many thanks .. :)
08 June
Michael O'Neill Michael O'Neill
FYI, I meant to say illusionary , not exclusionary. (I Ihate auto-correct)
09 June
andywielkiszu andywielkiszu
Have You changed SL or it's done?
09 June
Michael O'Neill Michael O'Neill
It is done. My entry level (1.2658) was horrible. Had I stuck to my original plan which was to sell in the 1.2690-1.2710 area, my stop loss would have been 1.2772... Losing 0.0085 points was enough on this trade, as described.
09 June
andywielkiszu andywielkiszu
Thx for Info.Would You sell it now?
09 June
Michael O'Neill Michael O'Neill
I just posted a trade update. I wouldn't sell it just yet. USDCAD appears to be bid following in the steps of general USD strength. You can sell a little here and add to it at 1.2765 but I would keep a tight stop, say, around 1.2772-82. It may make sense to wait until USDCAD finds a top and sell it as it declines rather than pick a top in a bid market
09 June
andywielkiszu andywielkiszu
Thank You Michael very much

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