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USD/CAD: Hitting & Testing (reloaded)

Wed, Nov 7 2007, 21:54 GMT
by Mihai Nichisoiu

Mihai Nichisoiu  |  View company's profile

In the notes published here on FXstreet.com dated October 9th, 11th, 20th and 25th I deconstructed the rationale behind repeatedly selling the USD/CAD short since late September, market action done in a personal attempt (eventually proved successful) to profit handsomely from the pair's rapid extension to all-time lows.

Mentioning the rather hastily decided exit out of the market, I also noted here on October 25th, 'If conditions turn a certain way (and they do seem to do just that), I'll have no hesitation to short again.'
There was nothing cryptic in that message. In my letter to clients of the same day I wrote:

'The US Dollar doesn't look well at all against the European currencies - at a time when the Gold market trembles like a volcano ready to break upwards, and the price of Oil is soaring.
Such a global cocktail may well drive the USD/CAD further lower enroute to fresh multi-decade lows, soon. As a matter of fact, in tomorrow's early European transacting time I will take into consideration shorting the pair for a small size position. A great deal of caution is required, though, as the seller becomes increasingly more vulnerable now than at any time recently to an abrupt short-squeeze like the one we saw on Monday, October 22nd, which may or may no longer prove just temporary.'

Confident that the US Dollar would be crashed yet again versus the Canadian Dollar, in the European transacting time of October 26th I opened two brand new short USD/CAD positions, at market at 0.9639 and 0.9621. On October 29th I shorted the pair for the third time, at market at 0.9590 - still, in my letter to clients emailed on the same day I cared to add:

'Nonetheless, considering what I currently perceive as the 'moral hazard' of the upcoming Federal Reserve's monetary policy meeting scheduled for this Wednesday, October 31st - I will be very closely monitoring my USD/CAD exposure and most probably will decide in favor of a consolidated exit ahead of the underway US interest rate decision.'

And indeed, just minutes before the Federal Reserve's interest rate announcement last week on October 31st I without hesitation closed out my 0.9639 and 0.9621 shorts at market at 0.9509. I dumped the third, 0.9590 short a couple of hours after the US central bank's announcement - at market at 0.9453.

My exposure on the US Dollar has since stayed at zero. Still, in my letter to clients of Monday, November 5th I noted:

'I see room for the US Dollar to go further down across the board. I see the USD/CAD making new lower lows, soon.

Nonetheless, beware of the US Dollar.
The US currency already looks like one of those Amazonian venomous snakes - you step over it repeatedly, and it may turn around and hit with a mortal bite just as you least expect it.'

That warning about the US currency's worsening odds has materialized indeed: since this week's first trading hours, the US Dollar dropped about 250 pips against the Euro, 300 pips versus the Canadian Dollar, while spot Gold surged almost $40.
The second part of my Monday's private notes, however, still remains to be observed.

Published on  Wed, Nov 7 2007, 22:23 GMT

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