Why I don’t like today’s USD/CAD trade idea from UBS

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From the UBS sales and trading team

Here’s an idea from UBS: Sell a rally in USD/CAD to 1.2975-85, stop above 1.3015, target 1.2900.

Here’s a look at the chart with the entry, stop and target with USD/CAD currently at 1.2953 after hitting 1.2973 earlier (just shy of the entry):

It’s a reasonable idea, but here’s why I don’t like it.

I hate setting up entries before the fact. With this one, for instance, we now see that we’ve just missed out on the entry earlier. That’s new information and maybe it’s something we need to factor in. You would now think some small-scale buy stops were building up there, so you would want to sell closer to 1.2985.

More importantly, with an auto-entry, you don’t know the news. If this pair jumps to 1.2985 on news that a NAFTA deal is very closer or imminent, then it’s going to blow right through the stop at 1.3015 as well. That alone tilts the risk-reward offside.

That doesn’t mean this isn’t a good idea. It just means that it’s not a mechanical one. if USD/CAD drifts up into that range and there’s nothing surprising that’s moving it, then consider it.

As for a separate Canadian dollar trade, Nomura recommends long AUD/CAD positions at 0.9412, targeting a bounce to 0.97 in the coming months initially. The stop is at 0.9250.ForexLive




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