It's possible that the BOE could step in like they did last year for NR, and on the day that was announced, the GBPUSD fell over 200 pips. Be on the lookout for ANY news relating to this... and if anyone sees something, share the news.

What does everyone think about this topic, which I pulled from dailyfx:

http://www.dailyfx.com/story/dailyfx...021670142.html

I'm really unsure how to position myself for this, on the one hand, the possible rate cut can't help the CAD, but on the other hand, with oil prices (and subsequent US demand) only rising, isn't Canada's position safe for the near future? Any thoughts?

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Well Canada tricked, and I quote, "everyone and their sleigh dog," by holding rates today. As a result, the CAD shot up against everything else, including the all-of-a-sudden hot USD.

http://www.dailyfx.com/story/tophead...104673128.html

I gotta agree with tjack... Canada seems to be a good bet. It's one of the richest (if not the richest) countries in the world in terms of natural resources, including oil. I think shorting the USD/CAD and planning on holding it for (at minimum) several months might be a good idea.

Hey guys, we have a good thread dedicated to USDCAD, which would probably draw more answers and in turn pose better questions for you guys to think about.

But as for holding a long-term USDCAD short, I would consider that relatively risky. There are always equilibriums in exchange rates where a consideration like plentiful natural resources will be fully priced into a currency. In effect this fact has long been priced into the USDCAD exchange rate - and was one of the drivers for the pairs long drop from 2002 to 2007.

Getting short now on the idea that Canada has natural resources would be like assuming fundamentals didn't exist before we arrived and the market now has to price them in. What's more, it would be getting short very near to record lows (which means there is very little room for profit in relation to loss with much larger headroom to the upside). For now (the next month or two), interest rate expectations will guide price action; so it is best to keep an eye on that as well.

Using some of the lessons learned from the FXCM power course, I have placed the chart below to support my position. For one, there was a shooting star yesterday after about 7 days of rallying (I also indicated similar past stars/hammers that indicated future reversals). Secondly, I have placed a line indicating what I believe to be a double top. And thirdly, while you are right in that we have recently been near record lows, the pair is now trading about 100 pips above that, and if you look at the longer term trends in the market, it seems that the currency has just continued to go down and down (in the long term). So, why would that not continue?

Perhaps maybe I'm too optimistic, and a long term position may not be the best thing... but given some of the candlestick patterns I've described, isn't it reasonable to short the USDCAD for at least a few weeks/months? What do you think?

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These are all valid technical points (except spot is now 1,150 points from its record lows and not points); but I just suggest caution on your time frame. I do recommend having a price objective as well as a time objective when placing a trade; but this pair is unique in that it can sustain long periods of choppy range trading, and it generally does not obey technicals very well.

As for saying it is off its lows, you are right. It could very well go back to these lows and perhaps go further; but is the the better probability? If you look at the weekly chart I attached for the past 7 years of price action, USDCAD has dropped considerably. And, exchange rates can not drop or rise forever. They must always find an equilibrium that reflects their value. Saying USDCAD will drop to new record lows would suggest that Canada is going to perform better and the US economy will erode to its worst conditions in recent history.

That is the rant I usually go on when I'm talking to another trader that sees the dollar continuing to plummet. But, all that aside, I do think a short-term short USDCAD position can be played well. Considering your resistance, you do have a good basis for a trade. What's your risk management strategy though? What are the stops and targets?

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We update the SSI readings twice a day for EURUSD, GBPUSD, USDJPY, USDCHF, USDCAD, AUDUSD and NZDUSD in DailyFX-Plus.

We do not issue the sentiment readings on the crosses however as (1) it is too much information, (2) for some pairs there isn't enough open interest all the time to give us accurate reads on retail positioning, and (3) some pairs do not have enough overall liquidity for retail to give a good contrarian sentiment reading.

I put up the Watch What The Fed Watches Report today. Doing the research for the report, I came across some interesting sentiment in the market.

First of all, there is actually modest speculation of a hike in June and a near 50 percent chance of a quarter point hike in August. It wasn't so long ago that the policy group was cutting by 75bp and fearing the collapse of the credit market.

Clearly, the outlook for the economy is still to the downside; but credit conditions have improved substantially. I guess the Fed feels it is clear to address inflation as long as the markets aren't on the edge of collapse and the economy is threatening a recession. Wonder if they would still inflation target if we had either a credit collapse OR impending recession alone...

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It's an interesting topic. Since Bernanke became chairman, he has made it clear (at least verbally, as cutting rates like he did sort of contradict the message, but anyway) that inflation would be his number one concern. That being said, if there are problems with credit, then the economy would just grind to a halt, and all hell would break loose. As one of the Fed's board of governors said the other day, "credit is the lifeblood of the American economy." So if the credit crunch suddenly takes a turn for the worse, Benny & Co. would, I'm sure, have to reevaluate their stance. If the credit market isn't functioning, I don't know how crucial inflation could be considered.

As for impending recession, I'm not sure. It seems like the thing that all the cool kids (among the central bank chairs of the world) are doing these days is being hawkish in their statements, almost regardless of what else is going on. While it is good that that some parts of the US economy are improving, don't forget that other figures, such as unemployment or the housing market, are not looking very good. Many great minds, including some relatively unknown billionaire from Omaha, are saying that we're already in a recession, while others say were on our way there. If that's the case, then maybe were witnessing what Bernanke will do in a recession: focus on inflation over the other figures.

That being said, and I know I'm going back and forth here, I don't think he's actually going to raise rates for awhile. Remember when this whole mess was starting last summer, and Bernanke was saying that he didn't want to cut rates cause of inflation. Ya... how'd that plan go? I think he's testing the waters in a sense; he's seeing what impact he can have by just speaking out. It is usually the case that the chairman of the Fed is overly optimistic of the state of the economy. Think back to when Greenspan was about to leave office... he was fairly optimistic about the economy then. As soon as he left, he started crying out that the economy was about to have some tough times (and he was right!).

Anyway, here's my vote: Bernanke does nothing for awhile (maybe til this fall) and just sees if the economy can continue to correct itself without intervention. If that's the case, then I believe that he'll start actively targeting inflation.

Lots of interesting things going on in the sentiment and positioning arena - though I'm particularly interested in what's happening with USDCAD and EURUSD this week.

EURUSD is making yet another test of range support around 1.53 (which looks more like a triple bottom when looking at price action through a line chart). And, the presence of the technical floor is clearly well known as we now see the market is showing the highest level of long interest since the end of 2006. Clearly, the range can't hold forever and there is going to be a break. Such a positive reading just suggest we have a greater probability that the retailers are too confident in low volatility and congestive price action, and a breakout may be right around the corner.

Interesting to note though, Jamie pointed out that the SSI reading contradicted what the COT numbers were showing. He sees more upside in the CFTC futures' numbers, where the SSI is suggests there is a large probability of a move to the downside. Anyone want to interject an opinion? I feel that if we don't find a breakout in the dollar's favor soon, the reading will merely ease as the pair pulls back into its range and a breakout will be off the table.

The USDCAD is much the same. Though there isn't a really intense negative reading according under normal circumstances, the intraday flip below parity is meaningful on its own. We haven't seen retailers so directionless in a year and a half, which for a pair that had 6 and 7-plus ratio readings is very bullish on a contrarian basis.

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Very good points. The Fed has taken to being more transparent in their policy outlook and that means they will be testing the waters with 'warning' rhetoric earlier. This may be a means for getting the markets ready for the eventual change that is coming further down the line.

When do you think he will raise rates? This year or further on?

Thanks... I personally believe his "stance" is a smokescreen in the short term. Despite what Bernanke would like to do (chase after inflation), I don't think he realistically will be able to for at least a few months. Despite the good odds being given to a rate cut by September...

http://www.dailyfx.com/story/bio1/US...306717281.html

I just don't think the economy is ready to take a rate hike (or multiple hikes) in stride. So, while this prediction will likely change depending on economic data in the next few months... my prediction is OCTOBER! What do you think?

Well, I don't think his commentary is a "smokescreen" because the Fed has clearly stated this year that they will make an attempt to be more transparent in their monetary policy (which is what led to the forecasts issued at quarterly intervals with certain monetary policy minutes).

IMO, his commentary is genuinely trying to prepare the markets for a shift - and the markets are very efficient at pricing in changes (they better be if there are billions and trillions of dollars assets that are being hedge on these forecasts). I certainly don't think we will get a hike this month, but would put an August at 50/50 and September at 80%. Of course, it will all depend on how 2Q GDP, consumer spending and inflation data fairs until then.

Here's my main point... I don't think that the economy is ready for a rate hike, and my belief is that Bernanke knows this. Given the US open is going on, the economy is still in the rough, and a good distance from the green (or even the fairway for that matter). One big concern that I have, which Bernanke basically cast aside last time he spoke, is unemployment. Should the FED raise rates, we could see even more foreclosures and defaults (due to more people being unemployed) and the credit crunch could worsen.

Plus, check this out:
http://www.marketwatch.com/news/stor...&dist=hplatest

So that's why I'm saying its all a smokescreen, as I think Bernanke is just trying to stir things up without actually having to make a move. If the results from last week are any indication, he has a lot more power than we often think.