巴黎银行-全球-外汇策略-为相对较弱的加元定位-20190710-7页_1mb

G10FX Summary: Positioning for a Moderately Weaker CAD

Core Content

This document outlines a trade idea for a European Digital Call option on USDCAD with a strike price of 1.34 and a 2m (2-month) expiry, priced at $15.7%. The trade is based on a moderately bearish view on the Canadian Dollar (CAD) relative to the US Dollar (USD), with a focus on tactical risk-reward and market positioning.

Key Messages

• Attractive Risk-Reward: The trade is viewed as having an attractive risk-reward profile for a short position on CAD in the near term.
• Extremely Long CAD Positions: CAD longs are at extreme levels, with a score of +37 on a -50 to +50 scale, the highest since January 2011.
• Structural USD Weakness: The USD is expected to weaken significantly through the end of the year, with a structurally bearish view.
• BoC Policy Outlook: The Bank of Canada (BoC) is lightly priced for easing, and even a slightly dovish message could have a significant impact on CAD.
• Data Surprise Metrics: Canadian economic data has been surprising to the upside, which may lead to revised expectations and a potential reversal in the future.
• Market Positioning: The FX market is crowded with long CAD positions, which could lead to a sharp unwind if data disappoints.
• Implied Volatility: USDCAD 2m implied volatility is near all-time lows, suggesting a low volatility environment.

Main Views and Analysis

1. CAD Longs at Extreme Levels

• The current long positioning on CAD is at an extreme level, as indicated by a score of +37.
• This level of long positioning is unusual and suggests a potential for correction.
• All investor types, including fast money investors, are holding long positions on CAD.
• The proxy for fast money investors is the most extreme in its positioning.

2. Fed/BoC Policy Divergence

• The Fed is priced for 82 basis points (bps) of easing over the next year.
• The BoC is priced for 12 bps of easing, indicating a more hawkish stance.
• The BoC is lightly priced for easing, and any dovish shift could have a significant impact on CAD.
• A FX headwind is building for CAD, but not yet to the level that would concern the BoC.

3. Data Surprise and Expectations

• Canadian data has been surprising to the upside, with positive data surprise metrics.
• These metrics are mean-reverting, meaning that as data continues to surprise, expectations will rise.
• There is a risk that future data may not meet these elevated expectations, which could lead to CAD weakness.

4. Trade Idea Justification

• The trade is initiated before the BoC meeting on 10 July, as the meeting is not expected to be a catalyst for significant movement.
• The risk-reward is attractive due to crowded long positioning and the potential for a sharp correction.
• The European Digital Call option is chosen for its leveraged exposure to the spot view.
• The implied volatility is near recent lows, indicating low market uncertainty.

Key Information and Notes

• The notional allocation for the trade is 1.91 USDm.
• The trade is not investment research and is non-independent.
• The document is a marketing communication and may contain Research content for certain clients.
• The trade is intended for professional clients and eligible counterparties.
• BNPP may have conflicts of interest, including acting as a market maker, advisor, or underwriter for the underlying assets.
• The document is subject to change and is not intended as an official transaction confirmation.
• Performance data may include back-testing and is not indicative of future results.
• Options are complex instruments with a high degree of risk and are not suitable for all investors.

Legal and Regulatory Notes

• The document is non-independent and may be subject to conflicts of interest.
• It is not investment advice and does not constitute a prospectus.
• BNPP and its affiliates may hold positions in the securities discussed, or act as market makers.
• The document is confidential and may not be reproduced without prior written consent.
• Disclosures are provided for US, UK, France, Germany, Belgium, Ireland, Italy, Netherlands, Portugal, and Spain.

Conclusion

The trade idea is based on tactical positioning and mean-reversion expectations in the CAD market. The risk-reward is attractive, and the option provides a leveraged exposure to the bearish view on CAD. However, market conditions and central bank policy remain key factors that could influence the outcome of the trade.