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The USDCAD spent most of July in a downtrend but failed to break strong US dollar support in the 1.0240-60 area. Canadian data releases have been on the soft side (May GDP +0.2 vs forecast of 0.3 percent) while US data has been mixed to firmer (US Q2 GDP 1.7 percent vs forecast of 1.2 percent). The WTI/USDCAD correlation appears to be back as shown on Chart 1. The break above 1.0310 suggests that a short-term bottom is in place at 1.0255.
Trade management and risk description
This is a short-term range based on bullish US short-term technicals. It is vulnerable to a) a more dovish-than-expected Federal Open Market Committee outcome today and b) weaker-than-expected US payrolls data tomorrow.
Trade idea parameters
Entry: Buy USDCAD between 1.0315-20
Time horizon: one week
USDCAD Open 1.0272-77 Overnight Range 1.0264-1.0287
The USDCAD had a fairly quiet overnight session. The AUDUSD got whacked following a speech by the RBA governor suggesting further rate cuts were in the cards. FX traders are merely marking time ahead of the FOMC meeting on Wednesday.
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Today’s Range 1.0260-1.0290
USDCAD Open 1.0270-75 Overnight range 1.0264-1.0284
The USDCAD is kicking off the week in a rather relaxed manner ahead of possible month end demand and re-balancing flows as well as ECB, BoE and FOMC meetings later in the week. The US Fed has gone to great lengths to ensure that their message was understood by the markets so this weeks meeting will likely reiterate what has been previously said.
The Fed chairman has explicitly tied tapering to US unemployment meaning that this weeks non-farm payrolls report on Friday, (Forecast +185K) could have a major impact.
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USDCAD Open 1.0413-17 Overnight Range 1.0400-1.0437
The USDCAD is locked in a 1.0400-40 trading band undecided whether to move higher or lower. Some of the confusion may stem from the BoC’s removal of this phrase (some modest withdrawal will likely be required) from yesterdays statement.
With the overnight rate at 1% and signs that the US economy is on an upswing, I think that there is little to ) chance of a Canadian rate cut.
WTI oil prices continue to stay firm (currently $106.60/bbl) which should not only cap USDCAD strength, but drive it lower toward support in the 1.0240-80 zone.
For today, USD support is at 1.0400 and 1.0360. Resistance is at 1.0440 and 1.0460.
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USDCAD open 1.0388-92 OvernightRange 1.0370-1.0405
USDCAD was largely ignored overnight awaiting with traders awaiting today’s double header featuring Bernanke and the Bank of Canada. If, the BoC maintains the status quo and IF Bernanke provides further insight as to the timing of QE withdrawal, then, as the chart suggests, then USDCAD should resume its grind lower to test strong support in the 1.0280 area.
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USDCAD Open 1.0423-27 Overnight Range 1.0412-1.0440
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The USDCAD flat-lined overnight in a quiet session ahead of tomorrow’s Bernanke testimony to congress and the interest rate decision and MPR from the Bank of Canada.
Today’s US CPI data is unlikely to spark much interest with markets biding their time until the Fed head speaks. It would appear that markets got the FOMC message in June all ass backwards as evidenced by last weeks post FOMC minutes debacle and so are extremely wary of another plot twist developing tomorrow. When in doubt-book a lunch.
The short term USDCAD technicals are bearish while trading below 1.0460 and looking for a break of 1.0410 to extend US dollar losses to 1.0360. For today, USDCAD support is at 1.0410 and 1.0380. Resistance is at 1.0440 and 1.0460
USDCAD OUTLOOK- BEARISH BIAS FOR WEEK AHEAD- July 15-19/13
RECAP: The USDCAD started last week with a bid tone as the US dollar traded up against the majors. Traders were content in their views that tapering would start in September and that US rates would rise some time in 2014. The release of the June FOMC minutes and a Bernanke speech on Wednesday initially confused players and then in a sudden burst of clarity, they started selling US dollars to beat the band. Bernanke essentially reiterated that tapering wasn’t tightening and nearly all the post FOMC dollar gains were erased.
THE WEEK AHEAD: Thisweek is likely to start off slowly. Despite important, Chinese data in the early Asian session, a Japanese National holiday will likely dampen trading enthusiasm. To see the rest click below