Update to USD/CAD trade idea

My USD/CAD idea has got off to a shaky start, with the market interpreting Janet Yellen’s testimony as dovish.

CAD
Source: Bloomberg

Following on from my previous trade idea, we also heard from the head of the Bank of Canada who gave little indication that the central bank is ready to ease again in March, an event that was largely priced into markets.

My suggested stop loss at C$1.2340 is still someway off, but the fundamental picture has shifted, while on the daily chart USD/CAD looks set to print a bearish outside day. Good selling has also been seen off the January downtrend. I was keen to keep position sizing small until the trend gave way, so this has mitigated some of the loss.

On a more fundamental note, Janet Yellen’s speech saw traders buying US treasuries, with the two-year US treasury falling five basis points to 55 basis points. The market is also now pricing in the prediction we will see an October lift in the fed funds rate.

I continue to hold a positive bias, although I understand the overall setup has shifted for the worse. Keeping position sizing small is certainly warranted until the picture becomes more favourable.

USD/CAD
Click to enlarge

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