FxWirePro: Activate USD/CAD longs via optionality on geopolitical grounds

Stay short in CAD vs USD as Loonie has further unwound turn-of-the-year weakness in the previous month, having now retraced back to mid-November levels.

However, the most recent leg in CAD strength is mostly driven by the generalized lift 

seen across growth-sensitive high-beta assets, but is less rationalized by the typical fundamental drivers – US/CA rate spreads and oil prices are both little changed on net
from a month ago.

We maintain comfortable with our medium-term play on long USDCAD via a one-touch calendar call-spread as an expression of political tension still to come. 

The USMCA ratification process is starting to pick up steam in the US, and while still under the radar, is starting to show signs of pressure that we’ve been anticipating. 

While it’s still too early to manifest in broader markets, we believe our timeline for mid- to late-year political stress (and subsequent FX pass-through) remains on track. BoC Governor Poloz’s speech highlighted that USMCA ratification remains an uncertainty, though its hiking bias remains intact for now; we assume that if peak stress does occur, that this could be put on hold until USMCA is resolved in late-2019. 

Trade tips: Activated longs in a -3m/+7m OT USDCAD calendar call spread (k=1.40). Paid 16.6% in mid-January. Marked at 17.15%. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly USD spot index is flashing at -22 levels (which is mildly bearish), while hourly CAD spot index was at -115 (highly bearish) while articulating at (11:16 GMT).

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex