High Volatility Attracts Traders To The Canadian Dollar

Daily Forex Technicals | Written by DailyFX | Oct 09 08 14:15 GMT |

The unprecedented, global rate cut yesterday produced record jumps in volatility. For the Canadian dollar, the surge has deepened trends and forced breakouts. However, with price action still holding some its dramatic properties from yesterday, traders should proceed with caution. See how our analysts are positioning for the loonie below considering the shift in market conditions:
Currency Strategist - John Kicklighter

My picks: Short EURCAD
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week

The Canadian dollar pairs have all experienced dramatic volatility over the past 24 hours thanks to the surprise rate cut by the Bank of Canada and other global central banks. Volatility for those pairs that are denominated in very high or low yielding currencies is still too high. Short-term breakouts can give way to any direction without prior warning. Looking to those pairs that are less yield intensive, it is still difficult to pick a good entry point with decent risk/reward - yet it still far clearer than others. EURCAD marks a reasonable opportunity. The pair recently broke a falling trend from the August 7th swing high; and price action proceeded to rally back up to the 50% retracement of the August 7th to October 6th swing low.

Fundamentally, the differential between the two yields is relatively small. What's more, the Euro-Zone seems to be more deeply embroiled in the spreading financial crisis than Canada. Also, for the medium term, Euro Zone growth has slowed far more aggressively than Canada; and a potential global recession could impact the amalgamated economy more quickly and take longer to work through the system. Considering the dramatic price action recently, entry is very important to any position. I will look for entry on two lots as close to the 50% fib at 1.5475 as possible. Stops will need to be wide (a more cautious exit would be for a close above 1.55). The first target should equal the initial risk taken on one lot, and the second could easily target a 50% pullback on the recent upswing - with a trailing stop to gaurd against another sharp increase in volatility.
Currency Strategist - Terri Belkas

My picks: Long EUR/CAD
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1 - 3 Days

From a fundamental perspective, I like EUR/CAD to the upside through the end of the week. The commodity dollars have been weak across the board, and the Canadian dollar faces heavy event risk on Friday morning. Indeed, the Canadian net employment change is forecasted to rise by 10K while the unemployment rate is anticipated to edge up to 6.2 percent, and these figures tend to have a huge impact on the Canadian dollar immediately after its 7:00 EDT release. However, Monday's release of Ivey PMI showed that the labor market conditions deteriorated as the employment component fell below 50. This has happened on two other occasions since December, both of which coincided with sharp declines in the net employment change. As a result, I'll be looking to hold a long EUR/CAD position with a stop below 1.5300 to target 1.5645, though I would look to close the position before the end of the day on Friday.
Currency Analyst - David Rodriguez

My picks: Buy USD/CAD - just not yet
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks

Well, my USD/CAD short trade finally stopped panning out. I had a pretty good suspicion that the USDCAD would not hold key resistance at 1.0800 last week, but risk/reward was just too tempting to pass up. Regardless, I think that the pair's major break above key Fibonacci resistance signals that the trend is now higher. I'm in favor of buying USD/CAD declines--just not yet. I think we'll see a fairly pronounced retracement before the pair heads higher
Currency Analyst - John Rivera

My picks: USDCAD
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 2-4 Days

The USDCAD has risen over 800 bps over in a little over a week. I think we could see a retracement here with the Fed still expected to cut rates another 25 bps and oil prices starting to stabilize. OPEC members are debating whether to schedule a November meeting, where they may debate whether to cut production. Markets may start to price in a supply reduction which could lend support for the "loonie". A 38.2% retracement of the recent 1.0325 – 1.1281 rally would give us a price target of 1.0915.
Currency Analyst - David Song

My picks: Pending Short CAD/JPY
Expertise: Fundamentals Combined with Technicals
Average Time Frame of Trades: 2 - 10 Days

The limited temperament for risk among investors continues to favor the Japanese yen, and I anticipate this trend to drag the CADJPY lower over the following week. The pair has fall over the last six consecutive sessions to break below many key support levels, but looks to be rebounding today. Despite the minor retrace, I expect the yen to hold its ground, and we may see the pair work its way down to the 6/7/05 low of 85.27 next week.

DailyFX

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