Let the market come to you. Don't chase moves, stick with your plan.

- Adam Szatkowski

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September 28, 2007

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You can learn to take part in the world’s leading equity index marketplace with a complimentary CME Group Equity Futures Intro Pack. The Pack Includes an Intro to CME Equity Products CD, an Intro to CME Equity Products Guide, a CME Equity Products Information Guide, a Financial Safeguards Guide, and the CME Equity Futures and Options 2007 Information Guide.

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Back in late June of this year, we were optimistically writing that the U.S Dollar (USD)/Canadian Dollar (CAD) would be trading at par by the beginning of the next year, 2008. It looks as if that time has come sooner that predicted. The CAD traded through par with the USD at the end of September after the Federal Open Markets Committee lowered the U.S. interest rates by an unexpected .50 basis points. The week before the announcement, we saw that the USD sold against most major currencies as a .25 point cut was factored into the market. The additional cut took many by surprise and the market began to digest the number with another hard sell-off of the USD. This was a large part of the momentum that helped push the Canadian past par. The USD/CAD has been on a strong run in the past months, with the help of higher crude oil prices and altogether higher commodity prices. There is some concern that tourism and exports may lose ground with increasing value of the Loonie, but it also gives the Canadians more spending power to help balance the run.

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The outlook here in the U.S. still looks grim, with the housing sector and mortgage crisis weighing on the economy. At the end of September, Consumer Confidence fell again to 99.8. The Case/Shiller data released for the month of July showed a .45% m/m decline in home prices. Ultimately, the rate cut decision should turn the housing sector around into next year. With the amount of inventory on the U.S. housing market, prices for homes lower, and a more attractive mortgage rate, the end of the housing meltdown could be near. Until that time, the Canadian economy should stay strong with the expectations for further U.S. rate cuts in the works. The Bank of Canada has put their rate increase on hold for the last couple of months, due mostly to credit issues and lower rates here. If there are further cuts here and increases in Canada, this could create another carry trade market that would not help support the USD.

As the fundamentals continue to weigh on the USD, the downside breaks are areas of opportunity to catch the new lows. The last time we wrote about this market, it was at the 1.0550 level and we waited for the breakout under the 1.05 level. Once again, we will wait for another low to get in. If not, we run the risk of being caught up in a pullback that could easily run 100+ pips. After the breakout below the 1.050 level, there has been a strong trend down that has been hard to fade. As expected, the market hit the 1.00 barrier and has absorbed the number with little pullback--as shown on the chart below. Once again we are looking to trade with the momentum on another break lower. Below you see the .9922 area as a point to watch for a short position. If the market can continue to sell off under that, our target is .9850 and .9970 area would be the stop loss area. There is strong sentiment the CAD will stay in the par area, so we are only looking for breakouts instead of trying to capture a long-term trend in these areas.

If you cannot view the chart, go here.

The risk of loss in trading commodity futures and options can be substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

Adam Szatkowski is a senior broker at RJOFutures. He considers basic money management to be one of his main objectives, and is always looking at the downside of positions to preserve capital if the market is not doing what was expected. And he believes in following the trend and momentum, as well as in using stop orders to lock in profits behind winning positions.

Harness the Power of CME Group Equity Futures

You can learn to take part in the world’s leading equity index marketplace with a complimentary CME Group Equity Futures Intro Pack. The Pack Includes an Intro to CME Equity Products CD, an Intro to CME Equity Products Guide, a CME Equity Products Information Guide, a Financial Safeguards Guide, and the CME Equity Futures and Options 2007 Information Guide.

Get Your Complimentary Intro Pack Now .