Inside the Currency Market: Mechanics, Valuation, and Strategies

Trade Strategy

The Canadian market trades as the TSX rises, and bond prices fall while bond yields rise. This combination sends Canadian dollar up toward weakness, a long position. So Canadian dollar/U.S. dollar would work in rising Canadian markets while U.S. dollar/Canadian dollar is a short because Canadian dollar's configuration was changed to reflect the bond price rather than the yield.

The Canadian arrangement will always be tricky because both the U.S. and Canadian markets reflect yields as both stock markets rise and bond prices fall. One side must reflect a bond price while another must reflect the yield. The question on any trading day is which combination works. The determination can be tricky.

U.S. dollar/Canadian dollar won't work ...