Canada Markets

Canadian Dollar Shows Resilience Near Two-Month Lows

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The spot Canadian dollar has seen a line drawn in the sand at $0.77608 CAD/USD. That represents last week's low and also the 50% retracement of the move from the May low to September high, as seen on this weekly chart. The lower study points to the net-long futures position held by investors falling for the eighth time in nine weeks, although by the smallest week-over-week amount seen over that time. (DTN chart)

The spot Canadian dollar fell by 9 basis points last week to $0.77636 CAD/USD, after falling to a low of $0.77608 CAD/USD, which happens to represent the 50% retracement of the move from the spot dollar's May low to its September high. Over the past eight weeks, the loonie has traded within a range from $0.77478 CAD/USD to a high of $0.79158 CAD/USD, the weekly range of activity recorded during the week of Oct. 23.

As seen in the first study, weekly momentum indicators are in oversold territory, which may lead to a slowing in selling activity. Indeed, the histogram on the lower study points to the bullish net-long position held by noncommercial traders falling for the eighth time in nine weeks to 41,960 contracts as of Dec. 12. This is the smallest week-over-week change seen over this period, with a reduction of 506 contracts.

Should the spot dollar break support at $0.77608 CAD/USD, a further move to $0.7642 CAD/USD may be in store, which represents the 61.8% retracement of the May through September uptrend. While not shown, the loonie's seasonal trend tends to point to a weaker trade in the first quarter of the calendar year, which could point to a further test of the support that has been in place over the past eight weeks.

Using ProphetX, the Seasonal Average for the past five years (2013 through 2017) shows an average dip of 2.5 cents or 2.9% from Jan. 1 through an early year low as of March 5. This bottoming is seen as early as Jan. 10, as realized in 2016, while as late as June 30, as realized in 2013. From there, the Canadian dollar seasonal average points to a rally to a calendar-year high reached in mid-June.

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