First an update of My Favorite Trades. In mid-March, I moved on from AUD/NZD to USD/CAD and EUR/GBP. At that time, I said I was looking for CAD to reach parity and for EUR/GBP to fall to at least 0.8915.

EUR/GBP has fallen beyond my target while the Canadian dollar is closing in on parity with the U.S. dollar. The main reason why the loonie has been so strong is oil, which rose above $85 a barrel today to a 17 month high. I think this baby will continue to rise and eventually reach my target of parity.

One of the questions that I was asked yesterday was, how long will the loonie remain at parity this time? When the CAD broke above parity in late 2007, it only remained there for about 2 weeks before fluctuating around parity for the next 7 months. I think that this time around, it will remain below parity for longer because Canadian officials have become more tolerant of the gains in the loonie. The economy is improving and Canadians are talking about raising interest rates. It has been a quiet data wise week in Canada but that will change next week when we the IVEY PMI and employment reports are due for release.

Meanwhile I really the Aussie and think that it can reach at least .9320 against the dollar ahead of the RBA rate decision on Tuesday.