Canada Markets

The Canadian Dollar Attempts to Change its Course

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The spot Canadian dollar has moved out of a recent consolidation pattern and above the highs of the last three weeks in today's trade. The histogram on the middle study indicates a growing net-short position held by non-commercial traders. The lower study indicates a bullish cross-over of stochastic momentum indicators while in oversold territory. (DTN graphic by Nick Scalise)

The Canadian dollar may be slowly seeking an end to the downtrend which started in early July 2013 at a high of $.94129 CAD/USD and ended with a low reached January 30 at $.78259 CAD/USD. The Canadian dollar has consolidated over the past two weeks, within the range of activity generated in the week of January 26. That may be ending with a gap higher in trade today, the second such move in four sessions, while moving to the highest level seen in 17 days as seen on the daily chart (not shown).

Higher crude prices have helped support the loonie, with the March crude oil contract having consolidated last week but showing signs of breaking out to the upside which could result in a seven-week high should crude push above resistance at $54.24/barrel this week.

The Canadian dollar has moved higher despite non-commercial traders having increased their bearish bets, reported at a net-short position of 33,333 contracts as of the most recent data for the week ending February 9. Investors haven't been as bearish since April 2014.

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As seen in the lower study of the weekly chart, stochastic indicators have signaled a bullish cross-over of indicators while deep in oversold territory, a signal that momentum has swung to the upside.

The Canadian dollar may also see support as we near one of two periods of seasonal strength. The first is the month of April, while the second ranges from August 20 to September 25. Both periods also coincide with seasonal strength seen in crude oil. According to Thackray's 2015 Investor's Guide, the month of April has seen the Canadian dollar gain strength against its U.S. counterpart on average over each 10-year period starting in 1971 as well as in the most recent 2010 to 2014 period, the only month of the year where this as happened.

Should the dollar hold gains achieved on today's upside break, Fibonacci retracement theory would suggest the possibility of a further retracement to $.8432 CAD/USD.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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