Canada Markets

The Canadian Dollar Struggles

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The Canadian dollar reached a fresh six-week high in Thursday trade, although struggled to sustain gains and sank back to the mid-point of the week's trading range, despite positive economic news. (DTN graphic by Nick Scalise)

The Canadian dollar has suffered two consecutive weak finishes on the daily chart (not shown). On Wednesday, the spot Canadian dollar gained seven basis points, although failed to hold gains after reaching a six-week high and after moving above the 50-day and 100-day moving averages. The spot Canadian dollar ended near the open of the day, which was also the low of the day, forming what is known as a gravestone doji, a bearish signal.

Thursday's trade saw another attempt to move higher, with the spot dollar opening higher, reaching a fresh six-week high, although the spot dollar's trading session ended at the low of the day, having gained just four basis points. These moves were despite a supportive Bank of Canada message on Wednesday, with the central bank holding interest rates steady, announcing that the notion that interest rates could be cut further is now off the table while improving their forecast for the country's growth potential for 2017.

The longer-term weekly or intermediate chart attached shows this week's trade failing at the 50% retracement of the move from the January high to the March low, which is calculated at $.75458 CAD/USD this week (horizontal green line), with the uptrend on the weekly chart intact. Trade ended barely over the 38.2% retracement level of $.75103 CAD/USD, which has proved a challenge for the currency over the past five weeks.

The middle study shows the stochastic momentum indicators drifting in a sideways direction, with the weekly chart showing a weekly up/down/up pattern over a five-week period. While this week's CFTC data (lower study) will be delayed due to the holiday, April 3 data showed noncommercial traders holding the largest net-short position held since February 2016.

The intermediate-term or weekly chart is perhaps showing signs of a developing head and shoulders chart pattern, which can only be confirmed with time. The left shoulder is seen in the month of December, with a high of $.7634 CAD/USD reached. The head of the pattern may be found the week of January 30, with a high of $.76965 CAD/USD. The left shoulder is perhaps being formed in current trade, with this week's high stalling at $.75582 CAD/USD. A potential breach of the dotted blue line, or neckline, could result in a further move lower of 340 basis points, which is equal to the distance from this dotted line to the top of the head ($.76965) on the January 30 weekly bar.

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