LOONIEVIEWS-TRADE OF THE DAY


NOTE: If you have any questions or comments or want to be included on the “Trade Idea Update” distribution list, please email Michael O’Neill @ michaelo@oneillfx.com

 

Michael O’Neill                                                                             December 7, 2016

GBPCAD in Battle of the Bands

Background:  It’s a battle of the bands.  No not an epic AC/DC-Guns “N Roses style clash but a more mundane currency range.    For the past month, GBPCAD has bounced erratically within a broad 1.6600-1.7100 trading band. After peaking at 1.6982 on December 6, GBPCAD plunged to 1.6687 on December 7 undermined by on-going Brexit concerns and a spate of soft data reports.

USDCAD is torn between widening CAD/US interest rate differentials and rising oil prices.

GBPUSD short positions are still very large and the currency pair is vulnerable to a further short squeeze on the approach to year end.

USDCAD has dropped, coinciding with the rally in oil prices.  WTI’s inability to break above the long-term downtrend line at $53.60 risks renewed selling on profit-taking.  The Bank of Canada opened the Dorr (slightly) to a rate cut in October and the December 7 statement is likely to be doveish, limiting USDCAD downside.

The intraday GBPCAD technicals are mildly bullish while prices are above 1.6675, looking for a break of 1.6770 to shift the focus back to 1.7000.

The risk of another bout of GBPUSD short covering into year-end combined with a doveish BoC statement suggests another visit to the top of the GBPCAD range.

TRADE IDEA RISKS

This idea is risky as it is a counter-trend trade.  It is vulnerable to a resumption of the GBPCAD downtrend which has been intact since January 2016.  The trade is vulnerable to fresh negative Brexit rhetoric which would undermine GBPUSD and by default GBPCAD.  It is also vulnerable to higher oil prices.  A spike in WTI from current levels could result in the stop being triggered.

The 1.6686 level should be watched closely as it is the 100-day moving average and could halt a topside rally

TRADE IDEA PARAMETERS     

 BUY GBPCAD:   ½ normal position size at market (currently 1.6740) Balance at 1.6690

STOP LOSS:  1.6645

TAKE PROFIT:   1.6970

TIME HORIZON   3 days

 

TECHNICAL OUTLOOK

 The intraday GBPCAD technicals are modestly bullish while prices are above 1.6660 looking for a break of minor resistance at 1.6770 to extend gains towards the range top.

7dec16-gbpcad-30-min-ti

 

GBPCAD daily with 100 day moving average noted

7dec16-gbpcad-daily-ti

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Author: Loonieviews

In the past 30+ years, I have been an FX interbank market making trader, a high performing FX and Derivatives Sales person, creator of simple and complex risk mitigation strategies and a manager of high performance FX teams. The Trade of the Day is a culmination of that experience. Retail FX traders have access to a well-crafted and carefully researched FX trade strategy designed to generate FX profits while mitigating losses.

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