FxWirePro: Deploy USD/CAD reverse knock out spreads as CAD risks skewed positive but medium-term uncertainties still linger

Although the past few weeks have brought little new to resolve medium-term uncertainties, recent relative outperformance is likely due to positive oil price exposure, and less stretched price and positioning compared to peers.

Much of the swings in CAD this year (vs the USD as well as other peers) have been driven by oscillations of expectations around some major aspects of the Canadian macro backdrop: the fate of the trade relationship with the US, the nature and path of policy normalization, and whether Canada can sustainably resolve crude oil bottlenecks. 

On most of these macro questions, little definitive new information was gained in the past several weeks:  Principal NAFTA negotiators continue to tout progress and hopes of an imminent “in-principle” agreement, but negotiations continue in Washington. A month ago, the market was surprised by perceived BoC dovishness, but rhetoric since then has been more constructive, though the signaling about the timing and conditions for the next hike remains ambiguous.

Options Trading Recommendations:

We bought a 2m 1.27 USDCAD put, Reverse Knock-outs 1.22 for 14bp in mid-April, simultaneously, the short hedges were also suggested. While simultaneously, Initiate shorts in futures contracts of mid-month tenors with a view to arresting further potential slumps.

Writers in a futures contract are expected to maintain margins in order to open and maintain a short futures position. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly CAD spot index is displaying shy above 98 levels (which is bullish), and USD at -66 (bearish) while articulating (at 06:17 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex

FxWirePro launches Absolute Return Managed Program. For more details, visit: 

http://www.fxwirepro.com/invest