CAD eager to snatch gains, lock in risks through Condor spreads

As EURCAD pair hitting a strong resistance at 1.3736 all luring factors turning the table on downward trends again. We perceive those slumps in Canadian dollar was majorly because,

• The Canadian unemployment rate was sluggish at 6.80% in April'15 which was unchanged from its previous month
• Trade deficit was seen at 3019 CAD millions in March of 2015 and widened CAD was a cause of concern. Decline in export volumes of energy products
• The BoC left rates on hold; the benchmark interest rate in Canada was recorded at 0.75% which was unchanged again.
  
  Key indicator on the calendar that drives up the currency
  
  
• BoC governor Poloz speech: Poloz is due to speak in chamber o commerce and hold a press conference through which the traders attempt to figure out any rate cut hints that was left unchanged.
• Wholesale sales MoM: This leading Canadian economic indicator is scheduled to be released tomorrow. It was printed at -0.4% in previous period, it is now estimated to be at 0.3%

Technical & Currency Derivatives Insights:

The clear bearish signal spotted out when we plotted daily charts on this pair. This was in conformity with converging patterns of relative strength index and price lines. And crossover of %K line on stochastic above 80 levels indicates an overbought situation. Although some bulls taking over advantages soon after occurrence of a resembling bearish engulfing candlestick pattern, could not be able to sustain their momentum. Hence, it is certain short call on this pair. However we also observed less volatility factor on the same.

Hedge it through condor construction:

Currency Derivatives Option Strategy: Condor Spreads (EURCAD)

As we could foresee the marginal upswings on CAD in intermediate trend with clear converging signals from RSI (14) and stochastic curves we sense some sort of early signs of bearish momentum on this pair (EURCAD).

Hence, here comes a multiple leg of option strategy for medium-to-long term traders of this currency cross. This is multiple legs position as 4 legs are involved in the condor options strategy and a net debit is required to establish the position.

The trader can construct a long condor option spread as follows,

Selling a lower strike In-The-Money Call

Buying an even lower strike price In-The-Money Call

Selling a higher strike Out-Of The-Money Call

Buying another even higher strike price Out-Of-The-Money Call

Condor option strategy is best suited when the underlying currency is perceived to have low volatility. Despite the traders who anticipate limited risk and non directional trend, this option trading strategy is structured to earn reasonable profits. But for short term traders this is not advisable.