Here’s A Compelling Long Trade For You

• September 29, 2004
• Dave Floyd

I see a compelling long trade in EUR/CAD at
present.  While the trend is clearly down on the daily and weekly time frames,
there is something else going on that I believe warrants a review as part of a
rationale to look to go long.

 

–         
Rate differentials: while Canada
currently offers a base rate of 2.25% vs European rates at 2.0%, picking up 25
bp’s per annum  is hardly enough to offset FX volatility.

 

–         
The 2% rise in the USD/CAD last
week seems a bit much given that Canada is not exactly in significantly better
shape economically than any other G10 country.

Yes, this is a
speculative play, but one that seems reasonably balanced from a risk reward and
mean reversion standpoint.  Look for near-term resistance at 1.5735.  If that
level is breached, 1.5900 is not out of the question.

 

Technical Notes:

 
USD/JPY:  a bit weaker overnight, but looks to test broken bear trend-line at
110.67 for possible support.

GBP/USD:  similar scenario
here.  Short-term models look weak, but daily model testing support at broken
trend-line and 50 ema, 1.8060.

EUR/GBP:  daily model shows
projected support holding at .6780 with nice acceleration on short-term model. 
Stage is set for a re-test of last week’s highs and possibly .6900

EUR/JPY:  136.50, bear
trend-line being tested.  Stochastic divergence on daily chart signals caution
on new longs for time being.

As always, feel free to send me
your comments and questions.

Dave