The Canadian dollar rallied on U.S. dollar weakness Wednesday. Daily commentary from DTN Senior Analyst Darin Newsom pointed to a death cross in the spot U.S. dollar index, a bearish situation where the faster-moving 50-day moving average crosses the slower-moving 200-day moving average from above, while Wednesday's U.S. dollar index broke below the 61.8% retracement of the move from the August low to the index's September high to reach the lowest level since Aug. 26, which could signal further weakness ahead.
There's a striking resemblance between the crude oil chart and the Canadian dollar chart since the end of September. While the December crude contract moved 16% higher between Sept. 24 and a high of $51.42/barrel on Oct. 9, the Canadian dollar also advanced over this period, moving 4.4% higher between its Sept. 29 low to its Oct. 9 high of $0.7758 CAD/USD. With oil trading on the defensive since then, the Canadian dollar has stalled, consolidating below last week's high as well as the December contract's 100-day moving average of $0.7750 CAD/USD.
As seen on the second study, short-term stochastic momentum indicators are in overbought territory, drifting sideways while leaving the market prone to a short-term technical sell-off.
The lower study on the attached chart represents a histogram of the net-futures position held by investors as reported in weekly CFTC data. As of the week of Aug. 10, investors held the largest net-short position seen since March 2014 of 67,405 contracts. Since then, this group has pared this position by 48%, having reduced their net-short position in seven of the eight weeks reported. The most recent net-short position of 35,010 contracts is the smallest net-short position held in 13 weeks, meaning investors are less bearish than seen this summer.
Resistance levels remain at the 100-day moving average of $0.7750 CAD/USD, last week's high of $0.7758 CAD/USD and the July 27 weekly high of $.7768 CAD/USD. Should these levels be breached, a further move to the 38.2% retracement of the move from the May high to the September low at $0.7786 may be in store, while the 50% retracement of the same downtrend is found at $0.7896 CAD/USD.
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