USDCAD - close longs

19 ม.ค. 2016

The long position entered on a breakout of the 1.40 level is finally seeing divergence on RSI. We warned earlier "that this trade (long USDCAD) is crowded: the relationship between the USDCAD pair and oil prices is well known to pro traders, hedge funds etc. Many analysts have written about this trade over the last 12m to alert retail traders to the opportunity. But perhaps more importantly, the recent large moves in the pair are attracting more traders looking for quick gains. When the uptrend is finally exhausted, all these longs will run for the same exit and typically, crowded trend reversals are volatile with large moves in the opposite direction as traders seek to quickly close positions and maximize their gains.

On the daily chart you can see that there is potentially divergence between price and RSI: Price shows higher highs (A & B) but currently, RSI does not confirm this bullish pattern because high D is still below high C. If RSI fails to move higher than C, then the subsequent divergence warns of a trend reversal. Watch the RSI indicator closely because it will provide early warning of when to exit the crowded long USDCAD trade and avoid the crush!"

The chart below suggests that there is now divergence between price and RSI and its a good time to exit before rush hour! Interestingly, a stonger CAD adds support to the argument that oil may have reached a durable bottom. Good luck.