Canada Markets

The Canadian dollar has been in a down-trend since its September 14 high of $1.0359 CAD/US dollar. The "risk-off" mentality is a result of the recent U.S. election, the U.S. fiscal cliff and the recession in European markets has taken wind out of the sail of the Canadian dollar which has closed above par with the U.S. dollar between Aug. 7 and Oct. 26, then again from Nov. 1 through Nov. 7th, but has been below par since.

While a number of negative technical signals exist, the loonie is currently testing technical support which may affect where the market moves from here.

Negative factors include:

-- the two bars inside the circle of the attached chart represent the daily trading ranges on Nov. 6 and 7 and indicate an outside day, with the trading range of the second day exceeding the range of the first. This can represent a sign of exhaustion in the market. I've seen an analyst refer to these particular bars as a bearish engulfing pattern as seen on candlestick charts, although this is not quite the case in that the body of the second day must engulf the body of the first day, where this does not happen in this particular case.

-- Canadian dollar seasonality charts, as found at equityclock.com, indicate a seasonal high in early November with an extremely sharp selloff until late November. The seasonal chart indicates a drop from its annual peak of approximately 102.3% of its annual average down to approximately 100.75% of its annual average by the third week of November.

-- The December chart indicates a bearish moving average crossover. On Oct. 23, the 20-day moving average (black line) crossed below the 50-day moving average (green line), which is a bearish signal. The 20-day moving average is also perhaps on a course to cross below the contract's 200-day moving average (blue line), which would also viewed as bearish.

Despite these signals, the dollar has perhaps signaled a temporary bottoming in the past two days: $.9952 is the 50% retracement of the rally from the June 4 low of $.9545 to the Sept. 14th high of $1.0359. This support has held in each of the past two days. Further tests of this price level may take place, while a breach of this level may lead to a test of the 61.8% retracement level at $.9856.

While the 200-day moving average (blue line) has acted as support in the past few weeks, the dollar closed below this average in yesterday's trade and earlier today fought to overcome the resistance of this price level, currently at $.9971. Prices did punch through this resistance and the close was above the line.

Last of all, stochastic momentum indicators for the daily chart are in oversold territory, although they have turned higher, another signal that buying interest may take over the trade. Upcoming trading sessions should clarify if the support found from this market retracement will continue to hold.

Cliff can be reached at cliff.jamieson@telventdtn.com

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