Canada Markets

CAD Exploring Both Ends of Its Monthly Range

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The spot Canadian dollar fell short of reaching a four-week high on Monday, while is now nearing a test of the lowest level traded over the past five weeks, with Wednesday's close at $0.77816 CAD/USD, the first close below $.78 since Nov. 1. The histogram in the lower study points to Canadian dollar investors reducing their bullish net-long futures position over six consecutive weeks as of the latest CFTC data. (DTN graphic by Nick Scalise)

The spot Canadian dollar fell just short of testing a four-week high in Monday's trade, falling less than 7 basis points of testing the $0.78919 CAD/USD high reached the week of Nov. 6. A break above this high would have indicated a fresh four-week high, which signals a bullish technical move that may have led to a further retracement toward the September highs.

Since Monday's high, the Canadian dollar has fallen more than 1 cent to Wednesday's close of $0.77816 CAD/USD, its first close below $0.78 since Nov. 1 while is nearing a test of the lowest level traded over the past five weeks at $0.77478. A breach of this level would instead point to a bearish break from the range traded over the past several weeks. Potential support lies at $0.77608 CAD/USD, which is calculated as the 50% retracement of the move from the contract's May low to September high. So far, this week's move has resulted in a bearish outside week trading bar, trading both higher and lower than last week's trading bar, which is viewed as a bearish technical signal but can only be determined given the results of Friday's close.

The histogram in the lower study points to the net-futures position held by dollar speculators, as reported by the CFTC. The latest data as of Nov. 21 shows this group paring their bullish net-long position for six consecutive weeks to 45,125 contracts, now the smallest net-long position held in 16 weeks. This position is down 41% from the high of 76,392 contracts held as of the week ending Oct. 9, which was the largest bullish position held in almost five years.

The Bank of Canada is set to release their next decision on Canadian interest rates next week, while there are indications that Canadian traders may not be pleased with the outcome. A Capital Economics release on Wednesday suggests that the Central Bank will signal that it is not considering a rate hike in early 2018 as many have pointed to, while also suggesting that rates may once again fall in the second half of 2018. CIBC's Monthly FX Outlook suggests that lower rates of growth along with "uncertainties for capital spending tied to stalemated NAFTA talks, minimum wage increases and new mortgage rules" has ruled out a possible rate hike on Jan. 17, while suggesting the "loonie retreat still has legs."

Should the Canadian dollar breach the multi-week low as well as the 50% Fibonacci retracement line, a further slide may be possible to the 61.8% retracement of the May-September uptrend at $0.7642 CAD/USD given further noncommercial liquidation.

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