Victor hits another home run shorting the Canadian Dollar a double going long the US Dollar by being short Gold and a solid base hit shorting the US Stock Market. Victors comments on the Canadian Dollar are valuable for any Canadian Investor - R. Zurrer for Money Talks
I started this week with a clean slate (I was skiing at Whistler last week and didn’t want any open positions) but I had a list of trades that I hoped to make if the opportunity presented itself.
Top of my list was to get short CAD and I did that Monday when CAD rolled over after last week’s little bounce. Dovish comments from Poloz on Tuesday re-focused the market on interest rate spreads (current and expected) between Canada and the USA (2 year spread now over 50bps) and that pushed CAD lower. Broad USD strength later in the week and Trump’s NAFTA comments increased the pressure and CAD ended the week at 9 month lows against the USD...down 5 of the last 7 weeks.
CAD is weak against a broad range of currencies...not just the USD. YTD it is down ~4% against USD,~6% against EUR, ~7% against GBP, ~3% against AUD, ~ 8% against MXN, and ~10% against JPY. This “across the board” CAD weakness points the finger at Canada-specific problems (self-inflicted poor fiscal policies, lack of competitiveness, domestic debt levels, etc.) The falling CAD is acting as a “release valve” or “shock absorber” for the Canadian economy...which is what should happen with a floating exchange rate. I think CAD may have much further to fall.
Next on my list was to get long the USD and I did that by shorting Gold on Thursday. (Gold and EUR have been moving up and down against the USD in virtual lockstep so shorting gold was more or less the same thing as shorting EUR.) This is an “anticipation” trade...I anticipate that if gold falls a few more dollars it could trigger a wave of selling that would take prices much lower. On the weekly chart gold had its lowest close since December.
A big part of my USD bullish bias is the anticipation that the Fed will “widen the spread” over the ECB. Right now it costs ~3% annually to be short USD against EUR. (Given the HUGE speculative long EUR futures position a lot of people seem to be willing to pay that cost but...IF the Euro starts to break down from current levels I think those specs become sellers.) Jerome Powell has his first FOMC meeting as Fed Chair next week. I think the currency and credit markets have been “quiet” ahead of this meeting because it could mark a “sea change” towards tighter Fed policy...and thus higher US interest rates and a higher USD.
Also on my list was to short the US stock market. My bias is that the sharp break from All Time Highs in early February was a big deal and not just another Buy The Dip opportunity. With that in mind I was looking for a spot to get short if the latest rebound ran out of steam. I bought OTM S+P puts on Tuesday when the Nasdaq made new All Time Highs and then registered a daily Key Reversal Down. At the end of the week I’m marginally ahead on this trade but my conviction level is low (the market had a great opportunity to break but, so far, hasn’t taken it.)
Last on my list was to short Crude Oil. I bought OTM puts on Wednesday when it looked like WTI could break below $ 60 (and perhaps set off a domino-like selling wave) but I covered the position for a small loss on Friday.