Canada Markets

Canadian Dollar Nears 2021 Lows

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The Canadian dollar gained 10 basis points against the U.S. dollar on Sept 21, after reaching its weakest trade in one month in the previous session. Long-term support lies at $.7759 CAD/USD, the 38.2% retracement of the move from the 2020 low to 2021 high (horizontal red line). The lower study shows investors increasing their bearish net-short position in the Canadian dollar in each of the past two weeks. (DTN ProphetX chart)

Since the Sept. 3 close, the spot Canadian dollar's exchange with the United States dollar has fallen below its 200-day moving average, its 50-day and 20-day moving averages. September 20 trade saw the loonie form a bearish gap lower, while reaching its weakest trade in one month against the USD.

September 21 trade saw the dollar close 10 basis points higher at $.7806 CAD/USD. Support has been uncovered at $0.78 CAD/USD, while the 38.2% retracement of the move from the March 2020 low to the June 2021 high at $.775919 CAD/USD has already been tested on Aug. 20 and remains as support. A breach of this level could result in a further slide to the 50% retracement, calculated at $.758591 CAD/USD, which would be the lowest trade since November 2020.

The downward-sloping blue line represents what could be viewed as the neckline of an inverted head-and-shoulders pattern. This pattern is formed by a left-shoulder formed on July 19, a head formed on Aug. 20 and a right-shoulder on Sept. 20, each roughly one month apart. Resistance on the neckline is seen at $.7974 CAD/USD, while technical analysis theory would indicate a breach of this would result in an upside target of $.8239 CAD/USD. This is calculated by calculating the distance from the Aug. 20 low, then added to the neckline to the $.7974 resistance on the neckline.

The blue bars of the histogram in the lower study shows investors increasing their bearish net-short position in each of the past two weeks. As of Sept. 14, speculators held a bearish net-short position of 9,823 contracts, the largest bearish position held since Dece. 15.

It is interesting to note from historical charts, the last time speculators moved from a net long to a net-short position was in March 2020 and they remained holding a bearish net-short position for 41 weeks. Prior to this move, they also moved from a net long to a net-short position in March 2018 and went on to hold a bearish net-short position for 66 weeks.

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

Follow him on Twitter @Cliff Jamieson

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