Monday, November 05, 2007

Contrarian Currency Trade: The Canadian Dollar - Seeking Alpha

Taking a look at the USDCAD=X pair chart, the USD is heavily oversold and has been on a downward ski slope since mid-September.;range=1y;indicator=volume+rsi+volumema;charttype=line;crosshair=on;logscale=on;source=undefined

Today the USD should recover slightly, and for the rest of this week either pull back some more or reverse dramatically upwards. 

The obvious question is of course how far will the bulls take it? Perhaps $100 crude and 1.10 CAD, but the upside of a potential reversal and resulting long liquidation (and not enough short interest to keep covering as price supportive) makes it worth shorting both. I am short at 1.07 CADZ07 (December 07 futures), and think a move back to parity is likely. I may exit and re-enter intermediately to manage this entry, but its a trade I intend to press when it starts working.

Contrarian Currency Trade: The Canadian Dollar - Seeking Alpha

Looking at TLT, or TLH, supposed proxies for VIX (Volatility Index), we can see that volatility is at numbing highs and have most likely hit a barrier.  This should result in a decrease in volatility, some cooling of the economy-crushing gold and oil prices, and a higher USD.

Let's see if my theory is correct by the end of the week.  Interesting times...  I won't be shorting the CAD anytime soon, but I will be going long USD... since I'm going to New York next week to see Alan Greenspan, Trump & his buddies again.

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