Foreseeable economic event risk will be limited to an start-of-week Housing Starts report and an end-of-week International Merchandise Trade release—hardly the recipe for major volatility. Yet FX options markets continue to price in considerable moves in the Canadian Dollar as broader financial asset classes remain especially active. Options trader sentiment on the Canadian currency is currently near its most bearish in eight months, while recent CFTC COT Futures data shows that speculative traders remain aggressively net-long. We believe that such a divergence leaves clear risk that Futures traders will cover Canadian Dollar-long positions—thereby forcing noteworthy CAD losses. All else remaining equal, over-extended positioning leaves less room for rallies and higher risk of pullback. As such, we remain medium-term bearish the Canadian Dollar (bullish the USDCAD). - DR
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