Sunday, 23 June 2013

Time to short the Canadian Dollar?

Over the last few trading sessions, and primarily through the recent FOMC annoucnement many all currencies have been weak against the USD, including the CAD. now considering the recent shift in the Governor of the BoC, is it now time to short the CAD

As can be seen through this chart, the USDCAD has broken up above some very key levels dating back to 2010, while in the short term there may be some covering headwinds there is a very strong potential that we head up to 1.0650 and then even further through to 1.0850

USDCAD. Thomson Reuters

From here we need to consider the best candiate to sell the CAD against, the USD looks interesting but there maybe a better candidate, this is because even though I'm bullish long term the USD, the short term yield differential between US 2's and CA 2's is not supportive of this recent move

USDCAD vs US2CA2 yield spread (LHS). Thomson Reuters

Because of this, maybe there is a short term play for the AUDCAD, As we can see below there has been a divergence between short term yields and this relates directly into swaps and is inherently bullish

AUDCAD vs AU2CA2 yield spread (LHS). Thomson Reuters
After suffering a nearly 11.5% fall in the last 50 sessions the AUD is overdue a corrective bounce and maybe now is the time. I would recommend buying at mkt 0.9625, with a protective stop on a close below 0.95 and look for a swing higher towards the previous swing lows and fib resistance at 0.9925.

Furthermore Price action is experiencing bullish divergences against both RSI (14) and Slow Stochastics.

AUDCAD. Thomson Reuters

In terms of fundamentals it should be very light, china may pose some issues as they could be on the verge of inducing liquidity measures to calm the banking system, this would be AUD positive but I wouldn't rely on it. From there we have CAD GDP on friday but that's a long way of now.

EDIT first ask of the week came in at 0.9600 so I entered there.

As I type Market in AUDCAD is 0.9735, and due to USDCAD bearish daily close I've decided to cover this trade for +135 (+0.5 in swaps)

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