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.