Canada Markets

The Canadian Dollar Rally Starts to Fizzle

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The Canadian dollar reached a higher high against the U.S. dollar for the sixth straight week on Monday, although closed lower for the second straight session as it struggles near resistance. The red bars of the lower study show that as of June 24, noncommercial traders held a modest net-short in the Canadian dollar, while as of July 2, this position moved to a net-long of 6,293 contracts (not shown), the first bullish position seen since March 2018. (DTN ProphetX graphic)

The spot Canadian dollar reached a fresh 2019 high of $0.7660 CAD/USD in its short-term uptrend against the United States dollar in Monday's trade. This is its highest level traded since Oct. 24, although it closed lower for the second straight session and near the lower-end of the session's trading range. The spot dollar ended 7 basis points lower at $0.763569 CAD/USD, after reaching its highest level traded since late October, or more than eight months.

This move comes while recent headlines in Canada's financial papers have hinted at targets of $0.80 CAD/USD, with the potential for a U.S. rate cut viewed as supportive for the Canadian currency. Friday's strong jobs report in the U.S. may have tempered ideas that rates will be cut in the U.S., which weighed on global equity markets on Monday.

An updated version of the attached chart would show the red bars of the histogram in the lower study showing noncommercial traders moving to their first net-long position in the Canadian dollar of 6,293 contracts seen since March 2018, as of July 2. This was reported in the Monday afternoon release of the CFTC's Commitment of Traders report, released a day late due to last week's July 4 holiday.

As seen in January of this year, the Canadian dollar has struggled with retracement resistance seen at $0.763481 CAD/USD, the 33% retracement of the move from the September 2017 high to the December 2018 low, as well as the 38.2% retracement of the same downtrend, calculated at $.768359 CAD/USD. Should these levels be breached, a potential change in trend could be triggered with a breach of the downward sloping trendline, in place since the September 2017 high of $0.7745 CAD/USD.

Traders may be positioning ahead of this week's Bank of Canada's rate decision, set for release on July 10.

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

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(ES)

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