Canada Markets

Canadian Dollar Trades Sideways Below Resistance

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The Canadian dollar rallied Wednesday on U.S. dollar weakness, while Wednesday's high remains below last week's high as well as its 100-day moving average. Short-term momentum indicators are drifting sideways while in overbought territory (middle study), while the lower study is a histogram which indicates investors reducing their net-short position in the Canadian dollar in seven of the past eight weeks. (DTN graphic by Nick Scalise)

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

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(ES)

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