Trading Notes - Short USDCAD

From BMO Morning Notes: We suspect that the squeeze in EURCAD is part of what dragged USDCAD higher Tuesday and yesterday. The bout of CAD weakness pulled spot USDCAD much higher than would have been expected based on correlated prices like equities and commodities. The backup in spot USDCAD triggered our financial factor model to initiate a short signal that it is still holding on to. The model acts independent of our views and sometimes we disagree with positions the model takes, but that is not the case here. We think USDCAD is a sell above 1.2600 and that it is likely to make another run at the 1.24-handle over the next week or two. Similarly, we think EURCAD is also a sell and that the pair is likely to revert to the low 1.48s over that horizon. Although it is admittedly hard to know when a squeeze is over (and the Archegos situation has probably left traders particularly gunshy about squeezes), we would still be inclined to stick our toe in and buy CAD at this juncture. Yes, it is true that squeeze might possibly extend further, but CFTC data shows that positions weren't all that extreme going into the squeeze, so we think the correction back to where we were might prove to be almost as violent as the squeeze. If you blink, you might miss out on a great opportunity.