Short term
Trade view / 27 July 2015 at 12:07 GMT

USDCAD retreated – it's time to reload

FX Trade Strategist /
Instrument: USDCAD
Price target:
Market price:

USDCAD touched levels it had not seen since 2004 on Friday but a failure to close above major resistance at 1.3065 combined with another Chinese equity meltdown today led to a steep, profit-taking retreat. It’s time to reload.

The Canadian fundamentals are weak. WTI oil prices are under pressure threatening further losses back to the 2015 low. The US dollar selloff versus the majors on Monday may be reversed by Wednesday’s Federal Open Market Committee meeting.  A negative print for Canadian GDP on Friday combined with the prospect of USDCAD buying for month end portfolio rebalancing suggests further USDCAD gains.

The short-term USDCAD technicals are bullish looking for another test and break of Friday’s 1.3103 high to extend gains toward 1.3400.

Management and risk description

A rally in WTI oil prices back above $50-52/bbl would likely trigger the stop.  In addition, if Wednesday’s FOMC statement is dovish which reduces the odds for a September rate hike, the stop would be triggered.

Trade idea parameters

Entry:  Buy ½ position of USDCAD at market (currently 1.3020) and balance at 1.2990.

Stop: 1.2940

Target: 1.3140

Time horizon:  Friday, by end of day

Chart: USDCAD hourly with post rate cut support level shown
Source: Saxo Bank. Create your own charts with Saxo Trader click here to learn more 

Chart: USDCAD Daily showing July uptrend
 Source: Saxo Bank

Chart: USDCAD 5 year weekly with moving averages and Fibonacci levels
Source: Saxo Bank

– Edited by Clare MacCarthy


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John Shaw John  Shaw
The Loonie is getting slaughtered.
Michael O'Neill Michael O'Neill
The trend is higher while above 1.2970-80-but the FOMC noise and the summer will ensure that trading is erratic.
yuiyui yuiyui
I know China China but maybe the markets are just doing their pre-rate rise tantrum then after it turns out to only be .25% the USD would soften a wee bit, markets correct because the rise was less than many expected and after all most would agree it was a long time coming and good for banking sector et al. Everything would slowly revert to the mean. My question is how much USDCAD level owes to oil. copper because with CAD at a 30% devaluation, that's a hell of a stimulus. But then again Canadian oil goes at a discount... Can you imagine USDCAD at 1.35? just curious
Michael O'Neill Michael O'Neill
Hi yuiyui: China is a big concern. The Middle Kingdom is not known for being a bastion of financial and statistical reporting and it is certainly not up to the standards of a G-10 country. The equity market meltdowns may be harbingers of worse things to follow.
I agree with you that a US rate increase of 1/4 is just noise and could spark a USD correction, however, the other major markets aren't still in rate cut mode.
As for oil, Canada will get whacked if it keeps falling. Alberta, Sask, and NFLD economies will bear the brunt but consider the exposure of Canadian banks to the domestic oil industry. Defaults, bankruptcies, etc would leave a mark. And this time it really is different. The Province of Ontario's bungling of the Hydro file is a mjaor cause of the decimation in manufacturing jobs. That doesn't leave a lot economic support coming from any where else.
Falling oil prices and a soft domestic economy means 1.3500 is a given.
yuiyui yuiyui
hmmm, thanks very much, you are a scholar and a gentleman
colinwbarnes colinwbarnes


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