The Canadian dollar has made strides in the last six weeks. After bouncing off support at 0.9650, we've now retraced 38.2% of the downtrend that began last September. Prices are north of all major moving averages I use in FX and I see higher trade ahead for the loonie, especially in light of recent moves in the oil and metal markets.
The Canadian dollar, much like other commodity currencies, can be sized up using guidance from energy and metal prices…
· Crude oil is still stuck in a sideways trading range, but my bias is toward the upside. A trade above $95/barrel in May futures should lead to higher oil prices, and a stronger Canadian dollar as the country's export receipts rise.
· Gold and silver prices have traded lower in the preceding weeks and have now reached value zones in my eyes. I have advised clients to wade into bullish trade in both metals. I expect to stay in these position trades for several months.
· Furthermore, the loonie trades inversely to the U.S. dollar. With the buck having just broken below its 34-EMA, it appears we'll see settlement below this critical pivot point for the first time since early February. As the U.S. dollar drops, the Canadian dollar should rise.
With three outside markets -- oil, gold and the U.S. dollar -- all supportive of a stronger loonie, I want to be a CAD buyer.
For both futures and options trades, use the 61.8% Fibonacci level (at 1.0050) as your upside profit objective. Risk should be cut on a trade below the 50-day MA (dark blue line), currently just above .9800 in June futures. I see ample open interest in June calls at every strike from .9850 to 1.0050.
Risk Disclaimer: The opinions contained herein are for general information only and not tailored to any specific investor's needs or investment goals. Any opinions expressed in this article are as of the date indicated. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.