CAD losses were relatively limited despite an oil price decline and a risk-off tone to global equity markets. CAD dropped 0.4% (as USD/CAD rose above 1.36) less than other risk-sensitive (AUD down 0.7%, SEK down 0.7%) and oil exporting (NOK fell 1.6%) currencies.
Technically, USDCAD has jumped above 7 & 21-DMAs from ever since it has bottomed out at 1.3315 levels. Bulls take-off rallies above DMAs with bullish crossover upon dragonfly doji formation at 1.3411 levels, while both leading oscillators (RSI & stochastic curves) are also in tandem with the prevailing upswings that indicates the intensified buying momentum (refer daily chart).
On a broader perspective, the major uptrend that was spiking through the uptrend line so far, though the failure swings were observed at the peaks of 1.4667 levels the bears attempted to create some downside traction but now they appear to be vulnerable in the major trend as bulls are taking cushion at 21-EMAs (refer monthly chart).
For now, the major uptrend remains robust amid momentary weakness as the current price hovering at 7-EMAs, one can think of some trading ideas using boundary strikes.
Overall, we continue to foresee that further upside pressure on the USD will emerge as the H2 of 2020 develops. Crucial support points are seen at 1.3392 and 1.3315 levels to gain upside traction.
Fundamentally, CAD’s relative resilience may have been due to CAGB underperformance; 10y Canadian yields rose above 0.58% following a statement from Finance Minister Morneau saying that the Canada is “looking at extending the term and duration of our debt in order to provide us with less rollover risk”. 10y CAGB yields strengthened as concerns around spreading COVID-19 cases weighted on yields. June 2030 CAGB yields closed unchanged at 0.5436%, in contrast to 10y Treasury yields falling over 3bp.
Trading tips: At spot reference: 1.3653 levels (while articulating), one-touch call options strategy is advocated using upper strikes at 1.38 levels. One can see exponential yields as the underlying spot FX keeps spiking towards upper strike on the expiration.
Alternatively, we recommended directional hedges that comprised of longs in USDCAD futures contracts of July’20 delivery, simultaneously, shorts in futures of June’20 delivery. The short leg has delivered desirable hedging objectives so far due to the price dips in the recent past. While long leg of July tenor should be upheld with an objective of arresting potential bullish risks.
