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My Long Canadian dollar trade idea was a strategic winner!

Another of this expert's price predictions came through this time with the Canadian Dollar

The Canadian dollar closed at 1.3265 on Friday 7 June. This means the loonie trade is almost 2 big figures in the money The resolution of the Mexican tariff fiasco will be positive for the Canadian dollar, which is also positively correlated to risk assets and the S&P 500 index/NASDAQ New money who did not act when I published my strategy idea at 1.3450 can position to go long Canada on any pullback to 1.3340

By Matein Khalid: Chief Investment Officer and Partner at Asas Capital 

I had a recommended buying the Canadian dollar (loonie) at 1.3450 on May 13, 2019 on my syndicated financial press articles and on my LinkedIn wall. I had explained the macro, relative interest rate spreads and positioning factors that anchored my bullish strategy call on the loonie. Three weeks after publication of this strategy call, the foreign exchange market has vindicated my bullish conviction trade on the loonie. The Canadian dollar closed at 1.3265 on Friday 7 June. This means the loonie trade is almost 2 big figures in the money. Time to take profits? Absolutely not. I am proud of this macro trade idea, not just because it was so profitable but also because the Canadian dollar appreciated while West Texas crude tanked in a vicious bear market since early May, down 22% to $51 a barrel.

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There are myriad to expect further appreciation of the Canadian dollar to my 1.30 – 1.31 target. US Treasury-Canada government bond spreads have dramatically narrowed in the loonie’s favour. US May payroll growth of only 75,000 contrasts with strong Canadian relative economic data momentum. Bearish short loonie positions on the Chicago IMM futures pits have fallen dramatically. Risk-reversals in the foreign exchange options markets suggest the loonie bulls in the smart money constellations have begun to assert their impact on options pricing.

 Even crude oil could be a positive catalyst as Saudi Oil Minister Khalid Al Falih is “certain” that Russia will agree to extend the OPEC plus cuts at the OPEC ministerial meeting in Vienna later this month. Above all, there is a renewed bid in the Euro despite Mario Draghi and a renewed bid in sterling despite the prospect of Prime Minister Boris Johnson, the no-deal Brexit snake oil salesman who is the front runner in the Tory leadership contest to succeed Theresa May.

The resolution of the Mexican tariff fiasco will be positive for the Canadian dollar, which is also positively correlated to risk assets and the S&P 500 index/NASDAQ. The Canadian dollar is undervalued on most bank econometric equilibrium models. Ironically, the loonie’s correlations with West Texas plunged after crude oil surged above $60 in March/April and did not rise even whom WTI tanked in May and early June. This is a game changer data point for loonie bulls on Planet Forex such as moi! Wall Street expects two Fed Funds rate cuts (50 basis points cumulative) at the July and September FOMC conclaves while the Bank of Canada will keep policy on hold. This means it makes strategic sense to be a loonie El Torro in June for a fair value target of 1.30. It is never prudent not act when Mr. Market misprices an asset and offers me a gift. The Canadian dollar at 1.3450 was such a gift and I decided to share it with my friends and readers in a profitable strategy call.

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The loonie has now closed above its 1.3276 200 day moving average. The message of the charts is crystal clear, fade any rally in the buckeroo! New money who did not act when I published my strategy idea at 1.3450 can position to go long Canada on any pullback to 1.3340. Good luck, or in deference to my son Sarie who just graduated from McGill University in Montreal, bon chance!

President Trump’s decision to suspend tariffs on Mexican exports to the US means the Mexican peso becomes a compelling buy on Monday. As Mexican dictator Porfirio Diaz once lamented “Pobre (poor Mexico. So far from God, so close to the United States”. The Mexican peso’s one-week implied volatility has spiked to 45, the highest in the world.

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The Mexican peso was slammed last week after Moodys cut the outlook for its sovereign debt rating from stable to negative while Fitch reduced its rating from BBB+ to BBB. Fitch’s downgrade was based on government oil monopoly Pemex’s dismal credit trends, not just Trump’s tariff threats.

In any case, the Mexican peso is a buy at 20 for a 19 target. Selling one-week implied volatility Mexican peso puts at 45 is a trade guaranteed to print mucho dineros. Hola Jefe!