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USD/CAD: Golden cross, risk reversals turn positive

3/28/2018, 9:59:59 AMBasics of Trading
USD/CAD: Golden cross, risk reversals turn positive

The pullback in the USD/CAD from 1.3125 (March 19 high) seems to have run out of steam around 1.2820 and the golden crossover indicates the spot could revisit the recent highs soon. 

Further, the options market has shed CAD bullish bias. For instance, the USD/CAD one-month 25 delta risk reversals (CAD1MRR) rose to 0.075 today, i.e. risk reversals are being paid at 0.075 CAD puts vs. 0.025 CAD calls (-0.025) on March 23. 

The positive turn in the risk reversals indicates the investors do not expect the USD/CAD to drop below 1.28. That said, a break below the psychological level may revive the demand for CAD calls (and push risk reversals back into negative territory).