From Oct. 1 through Dec. 31, the Canadian dollar followed a downward path bound by channel lines as indicated on the attached chart. This channel was breached on Jan. 3 with a 91.5 basis point move higher seen in the first two days of trade in 2019. To-date, the spot Canadian dollar has gained 291 basis points or 4%.
Thursday's move was 88.5 basis points higher to $0.76162 CAD/USD, its first close above $0.76 since Nov. 8, while printing a bullish breach of resistance. Thursday's move broke above the 50% retracement of the move from the October high to December low at $0.75728 CAD/USD, opening the door to a continued move to $0.76312 CAD/USD, the 61.8% retracement of the move from October through December.
Another supportive technical indicator is the recent move of the 20-day moving average above the slower-moving 50-day moving average, as shown by the green line moving above the brown line. This move could lead to increased technical buying interest.
The most recent CFTC Commitment of Traders report shows investors holding a bearish net-short position in Canadian dollar futures as of Dec. 18, as it has since late March, although this position had declined for two consecutive weeks. The next report will be released on Feb. 1 that will include Dec. 24 data, while the agency will then release a Tuesday and a Friday report each week until they are caught up. It is very likely that the data will show investors moving into a bullish net-long position over this time frame for the first time since March 2018.
According to equityclock.com, the Canadian dollar typically reaches a seasonal low in late January and tends to trend higher into mid-July. This is based on analysis of the 30-year trend ending in 2017, which points to the potential for a further move higher in its exchange with the U.S. dollar. The five-year seasonal chart plotted on ProphetX points to a seasonal low reached in early April with a seasonal high reached in late June.
A rally in crude oil remains a supportive feature for the Canadian dollar, with the March West Texas Intermediate just pennies away from a test of November highs. U.S. sanctions on Venezuela's state-owned oil company may be viewed as a bullish scenario for Canada in the eyes of Canadian dollar investors, although reports suggest that Canada's lack of capacity will allow competitors to cover the shortfall.
Cliff Jamieson can be reached at firstname.lastname@example.org
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