Canada Markets

The Canadian Dollar in Range-Bound Sideways Trade

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The Canadian dollar finished lower on Wednesday, posting a bearish outside-day trading bar, while holding above the sideways-trending 50-day moving average (blue line). After reaching a high on May 3, trade has remained largely above the 33% retracement of the most recent uptrend found at $0.76237 CAD/USD. The middle-study shows investors holding a bullish net-long futures position for 11 consecutive weeks, although the most recent week reached a seven-week low. (DTN graphic by Nick Scalise)

While the remain and leave sides release their final arguments ahead of Thursday's Brexit vote in Great Britain, which could have consequences for global currencies, the Canadian dollar remained steady through most of Wednesday's trade although has faced mid-day pressure to close lower Wednesday. While the results of the vote are expected to be close, the consensus seems to side with the stay in the European Union side, while a move lower in both gold and the United States dollar index on Wednesday seems to suggest a lack of concern in the markets.

Positive economic data was seen with Statistics Canada reporting higher-than-expected retail sales in Canada in April, up 0.9% as compared to the 0.8% retraction seen in the previous month. This seemed to have little impact on the loonie, with expectations already pointing toward May data that may once again prove negative partially due to the wildfires seen in Alberta.

As seen on the attached continuous active chart, since May 4, Canada's dollar has ranged from a low of $0.7582 CAD/USD on May 24 to a high of $0.7902 CAD/USD on June 8, with Wednesday's close just above the mid-point of the range. During this period, solid support seems in and around the $0.76237 level, which is the 33% retracement of the move from the Jan. 20 low to the May 3 high. As well, recent trade seems to be holding above the support of the sideways-trending 50-day moving average, which has supported the close in 10 of the past 13 sessions. This was calculated at $0.77826.

The middle study indicates that as of June 14 CFTC data, investors have held a net-long futures position for the past 11 weeks, the longest stretch of net-long holdings since a continuous 12 weeks were reported in the July through September period of 2014. The recent high of 26,259 contracts net-long held as of May 31 is the largest net-long held since February 2013, although has fallen for two consecutive weeks to a seven-week low.

Further investor selling in the loonie could be seen should selling weigh on crude oil futures. August crude oil failed to hold above its 20-day moving average Wednesday while also closing with a bearish outside-day trading bar Wednesday, trading both higher and lower than Tuesday's range only to finish lower. This could result in another test of the contract's 50-day moving average of $47.57/barrel and last week's low of $46.40/mt. The noncommercial net-long futures position of crude oil has fallen in each of the past four weeks after reaching the highest noncommercial net-long position since July 2014. As well, weakening spreads point to an increasingly bearish response by commercial traders.

The lower study on he attached chart shows the short-term stochastic momentum indicators for the Canadian dollar potentially rolling over after trending higher over the past six days, with the potential for negative technical signs to result in increased noncommercial selling which could weigh further on the dollar for a possible move back to test support.

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