New USD/CAD trade idea

US light crude has broken out of the year’s trading range, which is very positive for the Canadian dollar and other petro currencies such as the NOK.

Source: Bloomberg

Last night’s Bank of Canada (BoC) meeting was taken as a strong positive for the CAD and it was clear that the BoC saw the CAD weakness offsetting some of the disinflationary forces seen in the economy.

Still, the bank’s outlook remains ‘balanced’ and there are still a number of economists expecting rate cuts. However, as long as oil prices continue to march higher then the CAD looks relatively attractive given Canada’s reliance on oil exports to generate revenue.

USD/CAD has broken through huge trend support on the daily chart and momentum, and trend indicators are suggesting that the path of least resistance looks to be lower. The key now will be whether we can see a move back to the 38.2% retracement of the November-to-January rally at $1.2184 (and bottom of the ichimoku cloud).

I am keen to explore how the pair can react if we see a slight move back to the 3 February low of $1.2352. However, in case we don’t see a move back to these lows I feel prudent traders could look at small positions in USD/CAD for a move to $1.2190, closing positions if the pair moves back above the former trend support currently sitting at $1.2390.

AUD/CAD shorts are another way of looking at playing the CAD and the pair has printed a lower low, looking vulnerable to further downside. Today’s Australian jobs figures will be very telling, so bear this in mind if running short AUD positions.

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