FxWirePro: USD/CAD Spinning Top Signifies Minor Downtrend, Major trend Intact Upon Uptrend Line – Trading & Hedging Setup
USDCAD has been dipping ever since the spinning top occurrence at 1.4512 levels that nudges prices below DMAs, the prevailing rallies could be deceptive that are struggling to get support from both the leading and lagging oscillators (refer daily chart).
Although the pair has been attempting show some minor rallies from the last 2 days, the interim rallies in the minor trend unlikely to extend upswings as long as the current price jump above DMAs as both RSI and stochastic curves show downward convergence.
However, it is unwise to buck the major trend which is bullish and activate fresh shorts as you could see the 2nd chart.
On a broader perspective, the major uptrend that was spiking through the uptrend line so far, ever since the failure swings were observed at the peaks of 1.4667 levels the bears attempt to create some downside traction but they appear to be vulnerable in the major trend.
For now, as it has signalled only momentary weakness as the current price slides below 7 & 21-EMAs, one can think of some trading ideas using boundary strikes.
Therefore, overall we continue to believe that further downward pressure on the USD will emerge momentarily as the H1 of 2020 develops. Key resistance now is 1.4158. We target a drop to 1.3816 (at least) in the medium term.
At spot reference: 1.4017 levels (while articulating), boundary options strategy is advocated using upper strikes at 1.4093 and lower strikes at 1.3930 levels. One can achieve certain yields as long as the underlying spot FX remains between these two strikes on the expiration.
Alternatively, we recommend directional hedges that comprised of longs in USDCAD futures contracts of March’20 delivery, simultaneously, shorts in futures of May’20 delivery for arresting bearish risks in the major trend. The short leg is likely to hedge potential slumps and the momentary upside risks can be arrested by the long leg. Thereby, one could be able to directionally position in their FX exposures on hedging grounds.