Talking Points:

  • There is remarkable price development for thelikes of USDCNH (the Dollar-Yuan), but the the market is manipulated
  • EURUSD and GBPUSD will find big impact from trade wars (Euro) and Brexit (Pound) events but resolution is unlikely
  • USDCAD has the benefit of decisive event risk with clear and coordinated times, but that doesn't make easy trading

Many speculators only care about volatility and not the practical implications for trade scenarios. See how retail FX traders are positioned for USDCAD, EURUSD and GBPUSD heading into a theme and event laden final trading session of the week on the DailyFX Sentiment page.

The Capacity for Volatility Versus the Potential for Trades

If you intend to place a successful trade, there needs to be some movement. Even options traders looking to sell volatility need some degree of activity which boosts the value of the contracts they are selling into the quiet they expect moving forward. But for the more traditional spot traders in FX, shares and more; there is a definitive need for true market movement to capitalize on price change whether 'buying low' or 'selling short high'. And so, many traders look to maximize the action part of the equation and seek out volatility above all else. However, extreme movement with little means for establishing probability in direction and tempo is just as readily inviting expedited losses as quick gains. When looking for trades, there should be a healthy combination for both action and the ability to use probabilities for plotting a course.

Where USDCNH, EURUSD and GBPUSD Represent Greater Risks Than Opportunities

In looking for a healthy mix, we can readily highlight a range of popular pairs the market has fixed on recently that carry overt shortfalls. First USDCNH. The Dollar set against the Chinese Yuan (specifically offshore Renminbi) is a remarkably mover. An 11-day consecutive rally was the backbone of an incredible run this past month. The trade appeal is clear and a fundamental backing between risk trends and trade wars seems to offer clear motivation. The obvious issue for this pair is the reasonable questions over the market-determination of an exchange rate that Chinese authorities in particular have made little effort to curb belief that they were heavily involved in setting. With EURUSD, we have an exchange rate that traditional market forces set and strong fundamentals in trade wars and monetary policy. The issue is that the drive is vague with no explicit milestones to set the next leg forward. Perhaps one tier higher up the ladder is GBPUSD. There is a remarkable move from the likes of GBPUSD in the form of a multi-month bear trend to either extend or reverse. The theme for the 'Cable' is Brexit with some potential in monetary policy disparities. To that ends, today's full Cabinet meeting to discuss the customs solution with the EU is a definitive event - but without an explicit time and a greater capacity for a vague outcome on the solution.

Where USDCAD Offers Better Trade Terms than USDCHF, EURUSD, GBPUSD

A USDCAD that Can Capitalize on Discreet Event Risk and Technicals

From USDCAD, we bring together all of the appealing elements. There have been more than a few remarkable technical moves from the pair and a remarkably strong series of trends from the Canadian Dollar itself. The fundamental themes are overt in monetary policy speculation and a direct link of trade wars between the two countries. For the former, there is a more explicit path to follow while the latter is as complicated as it is for any other country involved in the escalation of their growth-at-the-others'-expense actions. Yet, here, we also have a unique concentration if high level event risk that lends itself to a clear assessment for whether the outcome is bullish or bearish. It also happens to all hit the wires at the same time. There is jobs and trade data from both the US and Canada all crossing the wires at 12:30 GMT.

Where USDCAD Offers Better Trade Terms than USDCHF, EURUSD, GBPUSD

It Still Isn't an 'Easy' Trade

Just because all of the elements are present however does not make USDCAD an 'easy' trade. The abundance of event risk - even if it is better suited to black-or-white outcomes - can also create crosswinds whereby fundamentally-charged event risk can lead the markets to move in contradictory directions. Say for example that the US jobs and trade figures are both strong while the same from Canada are also robust. Both sides will rise, but the one carrying the strongest sway over speculators' appetites is the currency that wins out. If neither sides' data is remarkable enough, it can leave the pair floundering. Of course, there is also the scenarios where all the data aligns to significant surprise and a strong move results. That said, we would still need to account for the fading hours of liquidity for the week and whether or not the move can extend to trade on Monday. Simple because we align more of the elements doesn't mean we have a perfect situation, but we can slowly improve the probabilities in the meantime. We discuss the appeal of USDCAD over a pair like EURUSD in today's Quick Take Video.

Where USDCAD Offers Better Trade Terms than USDCHF, EURUSD, GBPUSD