USD/CAD Rangebound Trading Opportunities

Good Afternoon,

Let's start with fundamentals and the jobs picture. Another well above expectations weekly initial claims. In normal times, we would be seeing markets fall very hard, but remember, these are far from normal times. Why? Because, good news is positive and bad news is positive as more quantitative easing is on its way.

I actually thought about this for a while today. If jobs data worsens, Obama will surely say: "Mr. Bernanke, can you please drop a few QE bombs out there" and as a result, we will have another up move in the markets. Do I believe this should happen? It doesn't matter. Until it stops working, go with the trend!

Technically, the SPX is still in a tight range - no changes there. 1360 on the bottom and 1390 on the top. We are back in the middle after today's downmove, but for a while, it looked like we had the possibility of shrugging of yet another weak economic report and trading higher. If the economic data comes in really, really poor, then QE may not have the shining effect it has in the past, but again, that remains to be seen.

Technically, forex had pretty muted ranges, but we saw support in the USD/CAD hold and as you can see from today's price action, the USD was oversold and the equities overbough, combining for an "inter-market relationship" trade.

But, and this is the big "but", did you see it today or were you aware of it because you have a WATCHLIST. There are only a handful of currency pairs I trade, so this support/resistance and relationship based trade has been on my radar for quite a while. I also like that it isn't just a trade, but an equity portfolio hedge as well. If you think equities are overvalued due to a softening economy, then we have less of a need to demand oil and oil prices should decline as equity prices do. The CAD, closely related to oil prices gets weaker. It happened to get weaker at an area of resistance in the .9800 area.

Past performance is not indicative of future results

Happy Trading and Be Environmentally Cool

Coach Brian

Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.

Posted By: 

Brian Kahn

Brian provides regular commentary focusing on the relationships between various financial markets. An experienced trader and portfolio manager with over 15 years in the markets, Brian relies on fundamental and technical analysis to create trading plans for each and every market entry.