Canada Markets

Canadian Dollar Struggles for Direction

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Tuesday's Canadian dollar trade exchange with the United States dollar reach its highest level in 12 sessions, although gains were pared. The spot dollar failed at the chart's 20-day and 50-day moving average. The lower-study histogram bars shows noncommercial traders in the Canadian dollar increasing their bearish net-short position for three consecutive weeks as of March 12 data. (DTN ProphetX chart)

The spot Canadian dollar gained 23 basis points on Tuesday, gapping higher to reach its highest level in 12 sessions following three consecutive lower closes and a bearish outside-day trading bar formed in Monday's daily trade. Tuesday is national budget day in Canada. The media is reporting that Canada's government may include substantial deficit spending to please voters and deflect attention from recent scandals ahead of this fall's federal election, although the market's views of this release will not be seen until Wednesday's trade.

Tuesday's trade resulted in a breach of the spot dollar's 20-day moving average at $0.7524 CAD/USD, while failing a test of resistance at the contract's 50-day moving average at $0.7539 CAD/USD. Tuesday's close at $0.75137 failed to hold above either of these lines of resistance.

Tuesday's trading bar could also be viewed as a bearish gravestone doji trading bar or candlestick, which is shown by the market open equal to the market close (or in this case, extremely close), while at the lower-end of the session's trading range. In this case, this represents a failed attempt at a more significant rally, with technical sellers limiting the advance.

Trade taking place over the period from Jan. 4 to March 1 resulted in a possible head-and-shoulders top pattern, with a left shoulder reaching a high on Jan. 9, the head reaching a high on March 1 and the right shoulder reaching a high on Feb. 27. The measuring ability of this pattern suggests the downside target is at roughly $0.7356 CAD/USD, with the distance from the upward-sloping neckline to the top of the Feb. 1 head deducted from the point that the March 1 trade breached the upward-sloping neckline. This rule of thumb would suggest close to a full retracement to the 2019 low of $0.7325 CAD/USD.

This analysis comes as the media is focusing on analysis by David Wolf of Fidelity Investments who is calling for the Canadian dollar to continue to slide to a record low of $0.62 CAD/USD, based on longer-term trends and Canada's recent weak economic data.

The histogram bars on the lower-study of this chart points to investors or noncommercial traders increasing their bearish net-short position in the Canadian dollar for a third straight week, as of March 12 data, to a net-short position of 41,053 futures contracts. This is the largest bearish position seen in five weeks, while this group of traders has held a bearish net-short position for almost one year.

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Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow him on Twitter @Cliff Jamieson

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