Canada Markets

Canadian Dollar Struggles

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The spot Canadian surged in Monday's trade, while failing at a test of the 67% retracement of the move from the July high to September low while struggling to sustain a move above $0.76 CAD/USD. The lower study shows noncommercial traders paring their bullish net-long futures position over four consecutive weeks with the latest data for Sept. 3, while this group will likely be shown to return to the bullish side when Sept. 10 data is released. (DTN ProphetX chart)

The Canadian dollar closed 6 basis points higher on Monday at $0.759676 CAD/USD, ending at the lower-end of the sessions trading range.

While not shown on the attached chart, the Canadian dollar surged 83 basis points over the past week, printing a bullish outside bar on the weekly chart and reaching its highest level in five weeks. This was the second higher close on the weekly chart seen in eight weeks, with the last increase seen with a 2-basis-point rise for the week of Aug. 5. This is not viewed as the most bullish of market turns, given that stochastic indicators on the weekly chart are showing a change in direction while near the mid-point of the neutral zone on the chart.

Between July 15 and Sept. 3, the spot Canadian dollar retraced to come close to the 67% retracement of the move from the May 31 low to the July 15 high at $0.747690 CAD/USD, a drop of 201 basis points or 2.6%.

Since Sept. 3, the spot loonie has closed higher in three of four sessions, increasing by 119 basis points or 1.6% from the Sept. 3 low. This move has resulted in close to a 67% retracement of the downtrend from the July 15 high to the Sept. 3 low at $0.761196 CAD/USD, while reaching the highest exchange traded since July 31.

Monday's high failed to hold above retracement resistance at $0.760151 CAD/USD and $0.761196 CAD/USD, while failing to sustain a move above $0.76 for the first time since July 31. A bullish gap in trade was formed in Monday's trade, with nearby support from the lower-end of the gap seen at Friday's high, or $0.759665 CAD/USD.

As seen on the weekly chart, the stochastic momentum indicators also do not show the most bullish of turns on the daily chart, with a cross-over of indicators on Sept. 3 taking place in neutral territory. The most bullish change in direction is seen when indicators cross while in oversold territory.

The red bars in the histogram on the lower study shows noncommercial traders reducing their bullish net-long position in the Canadian dollar in five of the past six weeks as of Sept. 3 data, although this group should be shown to increase their bullish holdings when data is released this Friday as of Sept.10 data.

On Sept. 4, the Bank of Canada reported that Canada's overnight lending rate would be left unchanged at 1.75% with no hint of change ahead, which is the seventh consecutive report that has held the line on rates. Media reports shows the odds of a rate cut by December have fallen to 40% after being reported at 50% last week, as signaled by financial markets.

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

Follow him on Twitter @Cliff Jamieson

(ES)

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