Attached is a daily chart of December Canadian Dollar Futures(CDZ2) and November Crude Futures (CLX2).
I included the crude chart to illustrate the positive correlation between the 2 contracts and to show that crude has led the most recent down move in the pair.
Crude appears to be forming a bottom at the same time Canadian Dollar is grinding to a critical point in the consolidative triangle. We are looking for a breakout in Canadian Dollar and believe that the odds favor the upside. We are looking at the CDX2 (November expiry in 38 days) 102.5-103.5 call spread for 27tics. We would wait until the Canadian Dollar traded above 101.90 to confirm a bullish signal.
The downside of waiting for the confirmation will be that we have to pay a couple more ticks for the spread (probably 30) but still could be worth it.
The most significant driver of this trade is U.S. dollar weakness as Fed Chairman Bernanke confirmed yesterday his intentions to continue providing limitless liquidity and even denied its connection to a softer dollar, a position we disagree with.