Commodity currencies are continuing to get crushed on the backdrop of USD strength driven by Yellen's increasingly hawkish statements and improving economic conditions in the US. Yellen's testimony sparked a broad USD rally after she expressed a likely rate hike in 2015 after 6 years of near zero rates if the US economy stays on course. Coupled with yesterday's rate cut by the Bank of Canada to .5% (25 bps cut) citing the weak performance of the Canadian economy over the last few months along with the declining prices of oil has driven USD/CAD to fresh 6 year highs, trading at 1.2950 now. Moreover, the Bank of Canada's dovish stance and deteriorating conditions in Canada has market participants pricing in a 30% probability of another rate cut in the next 12 months suggesting further weakness of CAD to come.
Technically, USD/CAD broke above 1.2800 for the first time in a meaningful way with confirmation from momentum indicators on the news of the rate cut. We see this as an opportunity to go long USD/CAD, with stops below 1.2700 and targets towards 1.3400 for spot traders. We see immediate support at 1.2800 and expect some consolidation after the initial move before a move higher. Options traders can take this view using Nasdaq's FX Options using XDC Aug 78/75 Put Vertical trading @ $1.06 currently. Click here to view the details of the XDC Trade.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Tony Zhang
Tony Zhang is a specialist in the financial services industry with over a decade of experience spanning product development, research and market strategist roles across equities, foreign exchange and derivatives. As the current Chief Strategist for OptionsPlay, Tony currently leads the research and development of their OptionsPlay Ideas & Portfolio platform. He has leveraged his interest in financial technology and product development to provide innovative reimagined solutions to clients and the users they seek to serve. Previously, he spent 7 years at FOREX.com with a capital markets and research background as a market strategist specializing in equity and FX derivatives markets.
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