Weekly analysis of one key market direct from the trading floor. To take a position, it is only a click away in the Trader Radar watchlist in PureDeal.
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Current trading opportunity to keep an eye on - USD/CAD
We could have easily chosen to focus on the recent breakdown in price action on gold, with traders eyeing a weekly close below $1532 as a signifcantly bearish event. We could have also highlighted Friday’s bullish outside day (i.e printing a lower low and closing above the previous high) on the VIX (volatility index), with a subsequent close above the neckline of the reverse head and shoulder pattern at 20.90% suggesting that the VIX could be headed to 28.4%. We could have even discussed the uptrend from the 2001 low on EUR/USD at 1.2790 (monthly chart), ahead of 1.2624 (January 2012 low), with momentum traders likely to face headwinds on short EUR/USD postions at these levels. However, this week’s ‘one to watch’ potential trading opportunity is long USD/CAD, and some traders may look to do this on a daily close above 1.0076, with stops around 0.9960 and targeting a move to the 1.0248 region.
Momentum indicators are suggesting the pair could see higher highs, whilst a potential increase in risk aversion could keep traders bidding up the USD. One may perhaps see a more aggresive sell-off in NZD or AUD , so we would again favour short AUD/CAD (see previous technical pieces), however we still expect CAD to come under pressure as a result of fears about global growth (predominatly US) and risk aversion, only heightened by a move higher in soverign spreads and an ever-growing chance of a Greek default after the second Greek election.
Strength breeds strength, and a currency in motion tends to stay in motion; two anatacdotes that we feel are warranted on this trade. So, rather than wait for value to emerge on a pullback, we believe waiting for a break of the 1.0055 – 1.0076 level on a closing basis could potentially be a good way to play this (as highlighted on the chart). 1.0055-1.0076 would represent a breakout above the February trading range and the 38.2% retracement of the November to April sell-off, and confirm the bulls are in control.
A stop loss just below the 38.2% retracement of the April 27 rally at 0.9960 could protect the position to the downside, while the trade would potentially target 1.0248 (62.8% retracement of the November to April sell-off).
Updated: 15/05/2012
Chart data sourced from Bloomberg.
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