Canada Markets

Canadian Loonie Flirts with Support

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Canada's currency tested support on Friday while reaching its lowest level traded since July on the continuous active daily chart. Retracement support is found at $0.75605, the 38.2% retracement of the move from the January low to the May high. A breach of this level could result in a further move to the 50% retracement found at $0.7417 CAD/USD. (DTN graphic by Nick Scalise)

Crude oil reached a five-week low on Friday on continued concerns of global oversupply. Over the last week, the International Energy Agency has changed forecasts to indicate that the global oversupply will continue into 2017, while headlines Friday point to increased exports from Libya and Nigeria, which could further compound the problem. NYMEX crude oil for October delivery is down $0.64/barrel to $43.l7/barrel in early afternoon trade, after dipping below $43/barrel earlier in the session. Meanwhile, the weekly Baker-Hughes oil rig count was reported to be two higher at 416 rigs in the United States, a seven-month high and the 12th consecutive weekly increase which weighed further on prices.

As seen on the attached continuous active daily chart, since reaching a high of $0.8025 CAD/USD on May 3, the Canadian dollar has traded sideways between a high of $0.7902 reached on June 8 to a low of $0.7546 reached on July 27. Over this period, noncommercial traders, or investors, have held a bullish net-long futures position, as seen in the blue bars of the histogram on the second study.

Friday's trade has saw the loonie test the lower limits of the range traded over the past 19 weeks, with Friday's low dipping to $0.7548 CAD/USD, just 2 basis points above the July low of $0.7546 CAD/USD. Friday's low also tested support of the 38.2% retracement of the move from the January 2016 low to the May 2016 high found at $0.75605. Downturns in the month of May, July and August have all held above this level of support, while a breach of this level could result in a further move lower to a test of the $0.7417 CAD/USD, a level that hasn't been seen since early March.

As shown in the first study, Canadian dollar investors pared their net-long position in the Canadian dollar for the first time in three weeks as of Sept. 6 data showing a net-long futures position of 20,905 contracts. Friday's CFTC data release shows a further move lower to 17,058 contracts as of Sept. 13 (not shown on chart). This still remains at 65% of the largest position recorded since the May high. A continuation of this long-liquidation trend seen by investors may eventually lead to broken support and a further move lower.

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