The USD/CAD currency pair has been testing resistance around the 50-day simple moving average for the past week. The loonie flexed its muscles against the U.S. dollar for much of the day on Monday. Statistics Canada revised up its figures for gross domestic product for the second and fourth quarters of 2011. Sentiment in favor of the Canadian dollar has also been bolstered by a recovery in the price of crude oil (Canada's largest export) back toward the $92.50 level on NYMEX.
Of the major currency pairs, USD/CAD seems to have the most interesting daily chart. The 50-day simple moving average is in a clear down trend. After hitting a low of 0.9632 on September 14th, the pair rallied to near the 50-day moving average on September 26th and has traded in a tight range just below the 50-day simple moving average ever since.
If crude oil continues to rally, it might make sense to short USD/CAD at current levels (0.9821) with a tight stop just above the 50-day simple moving average and a target of 0.9695.
Another way to trade this is through the CurrencyShares Canadian Dollar Trust (Nasdaq:FXC). This is priced as the number of US dollars it takes to purchase 100 Canadian dollars (plus management fees) which, as of this writing is $101.20.
In the foreign exchange market, USDCAD is quoted as the number of Canadian dollars (0.9821) that can be purchased with one US dollar. So, the target price for USDCAD of 0.9695 cited above works out to be $103.14 for FXC.
FXC does have options that can goose up your leverage, but these are very thinly traded and even a small retail order could have a major market impact -- making these particular options very risky and rather impractical for trading.
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