Canada Markets

Canadian Dollar Breaks Support

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The Canadian dollar fell for a fourth consecutive session on Monday, while breaking below the lower-end of a downward sloping channel in place since the December contract's April 29 high. The middle-study points to the stochastic momentum indicators which show the price nearing oversold territory, while the lower study shows non-commercial traders or investors holding the largest net-short position in the Canadian dollar since late March. (DTN graphic by Scott R Kemper)

The Canadian dollar tumbled for a fourth consecutive session on Monday, trading as low as $.74665 CAD/USD in electronic trade for the December contract, down from a high of $.77035 CAD/USD last week.

The Canadian dollar broke through the resistance of the lower end of a channel which has been in place since the December contract reached a high on April 29. Monday's move below $.7495 marks a bearish breach of this channel, while may point to the potential for a further move lower to a test at $.74285 CAD/USD, the 50% retracement of the move from the contract's January low to April high.

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The middle study shows the daily stochastic indicators which continue to trend sharply low, although have yet to fully reach the over-sold territory (below 20), indicating that a further move may be in store. It is interesting to note that since September, upward momentum has been challenged to sustain a move beyond the mid-point of the neutral zone on the daily stochastic chart.

The red bars on the lower chart show speculators in the Canadian dollar increasing their bearish net-short futures position for a fourth consecutive week to 14,298 contracts net-short, which is the most bearish position held since late March. This follows a 25-week period from April through September when investors held a bullish, net-long futures position which is the longest stretch of a net-long holdings since late 2012/early 2013, according to weekly CFTC data.

The final two months of the year tend to reflect seasonal weakness in Canadian dollar trade. ProphetX points to the five-year seasonal average in decline through November and December. As well, Thackray's 2016 Investors Guide reports the average monthly gain over the 1971 through 2014 to be minus .1% in October, minus .4% in November and unchanged in December. November is reported to be the weakest month of the year over this period.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

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