USD/CAD ANALYSIS

Technical:

Price action has finally broken impulsively lower, with USD/CAD now trading well below the well defined hourly channel base (1.0650), and below the 21-day MA at 1.0660. For now, look for a further extension lower, with solid support expected in the 1.0590-1.0600 window, and again at 1.0560. A break above 1.0685 is now needed to negate the short-term bullish CAD view. Daily MACD still USD supportive, although the daily RSI has broken lower. Until 1.0660 breaks, favour new cycle lows.

Option:

Buying did continue this morning although did subside by the end of the day. 1 week was paid as high as 8.6% on the open, and 1 month trading at 7.6%, down to 7.5% later in the afternoon. 3 month traded down to 7.05% and 6 month traded at 6.8%. Overnights were better bid on the open, trading at 13% for 1.0600 strikes and down to 11% later in the afternoon.
Strikes for tomorrow 1.0600 1.0610 1.0625 1.0675

Prognosis:

Today’s break of recent stubborn upward channel opens another leg lower for Funds. With recent covering of long Canada positions over the past couple of months we look for less resistance to further Canada gains. We look for the base of a long term channel off Nov ’04 and June ’06 lows at 1.0400 as target for this leg lower. We look to trade from a short USD position looking to add on a minor pull back to 1.0610 and again at 25 looking for initial support at 1.0550. We doubt the move lower will have the momentum of the spring Cad rally, so we look to job the anticipated move lower. Back above 1.0665 and look to exit any USD shorts.