Canada Markets

The Canadian Dollar Returns to Test Resistance

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The spot Canadian dollar gained 62 basis points on July 15, returning to a test of resistance at $0.7414 CAD/USD. The red bars of the first study shows investors paring their bearish net-short position for the sixth time in seven weeks as of July 7, the smallest bearish position seen in 16 weeks. (DTN ProphetX chart)

The spot Canadian dollar gained 62 basis points against the United States dollar on July 15 to close at $0.74031 CAD/USD, returning close to the highest levels traded in more than a month. Since June 11, the Canadian dollar has traded over a 121-basis-point range, from a high of $0.74136 CAD/USD, to a low of $0.72923 CAD/USD.

Since reaching the spot dollar's strongest trade against the USD seen in 14 weeks during the week of June 8 of $0.74826 CAD/USD, trade has remained range-bound in a mostly sideways fashion. The high for the range was reached on June 11 of $0.74146 CAD/USD, while this exchange rate has taken a run at this high on June 23, July 8, July 9 and then again on July 15.

A breach of the highs reached over the past month, along with the contract's 200-day moving average at $0.74127 CAD/USD will set the stage for a test of the 67% retracement of the move from the January high to March low, calculated at $0.74294 CAD/USD.

The red bars of the first study's histogram shows investors becoming less bearish in the Canadian dollar. As of May 19, this group held a bearish net-short futures position of 35,056 contracts, the largest bearish position seen since June 18, 2019. Since then, this group has pared this position in six of the past seven weeks, holding the smallest bearish position seen since late March as of July 7.

Hopes are likely pinned on a continued recovery seen for the global economy, with commodity currencies such as the Canadian dollar expected to do well in such an environment. Crude oil is just one example, with the August NYMEX crude contract poised to post a weekly gain for a third straight week, while currently showing the highest close on the weekly chart since the week of March 2, with two days of trade left for the week.

While the Canadian dollar has gained 43 basis points so far this month, the month of July is not viewed as a period of seasonal strength for the Canadian currency, according to Thackray's 2020 Investment Guide, based on data from 1971 to 2018 where an average loss for the month over this period of 0.1% is reported. The next period of seasonal strength is noted from Aug. 20 to Sept. 25, which is found in conjunction with a period of strength in crude oil markets.


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