Forex Investment and Currency Trading

Tunnel
The Tunnel establishes a range within which currencies may be exchanged on a specific date in the future. The range of possible exchange rates are bound by a worst-case or “protection” rate and by a best-case or “benefit” rate. The Tunnel is structured as a combination of two out-of-the-money options, where the purchaser of the Tunnel buys an option struck at the protection rate, and sells an option struck at the maximum benefit rate. Generally, the Tunnel is structured to be zero-cost; however, the range and/or the benefit level can be improved by paying an up-front premium, also known as [...]

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A buyer of a CAD Call buys the right, without the obligation, to exchange a fixed currency amount for another at a set strike price on a specific future date. Unlike a spot or forward transaction, the buyer of the CAD Call is not obligated to buy CAD. If USD/CAD spot at expiration is below the strike, the holder of the CAD Call will exercise the call and buy CAD / sell USD at the strike. However, if spot is above the strike expiry, the holder will not exercise the CAD call and can buy CAD / sell USD at [...]

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A forward contract binds two parties to exchange an agreed amount of one currency for another at a fixed rate on a specified future date. A forward rate is calculated by taking spot and adding or subtracting forward points. Spot is the price today to sell one currency and buy another with settlement in one business day. Forward points are determined by the currencies’ interest rate differentials. If the base (denominator) currency’s interest rates are higher, forward points will be negative and the forward rate will be priced at a discount. Conversely, if the base currency’s (denominator) interest rates are [...]

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USD/CAD Trapped in a Neutral 0.9724 – 1.0343 Trading Range
Active “Layered” hedging strategy - Sellers of USD/CAD should focus on resistance at 1.0235, 1.0343. A 3-month cable car option could also be incorporated into this strategy.
Disciplined “layered” hedging strategy - Buyers of USD/CAD should focus on support at 0.9895, 0.9724 and 0.9422. In addition, a 3-month enhanced forward could be considered for this strategy.

USD/CAD is trapped in a 0.9724 – 1.0343 trading range that has produced a neutral trend bias from a technical perspective.
A global economic slowdown is continue to be viewed as main concern for the Canadian dollar.
A marked slowdown in economic [...]

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