Canada Markets

Is Current CFTC Data Bullish for the Canadian Dollar?

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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As of April 19 CFTC data, investors held a bullish net-long position in the Canadian dollar (blue bars) for the third consecutive week of 7,308 contracts. One Canadian economist has indicated that the last time the net-long position reached a similar level, or 7,333 contracts as circled in May 2015, the CAD rally ended shortly after and only to move sharply lower, as indicated by the move in the black line measured against the primary vertical axis. (DTN graphic by Nick Scalise)

According to CFTC data, investors or noncommercial traders have tended to hold a net-short position in the Canadian dollar in recent years. As seen on the attached chart, since the beginning of 2013, this group has held a bullish net-long position (blue bars pointing higher above the zero mark) in 24 weeks. This includes seven weeks at the beginning of 2013, 12 weeks in 2014, two weeks in 2015 and so far, three weeks in 2016.

According to Canadian economist David Rosenberg, as reported in today's National Post, the recent move from a net-short of 66,819 contracts as seen in the week ending Jan. 26 (noncommercial net position) to a net long of 7,308 contracts as of the week ending April 18 may not point to a bullish signal, in fact, he refers to it as a "contrary indicator."

The last time that the net-long held reached a similar level of 7,333 contracts as of the week ending May 26 2015, as circled in red, the Canadian dollar experienced a brief three-week rally only to trend sharply lower. Over a 12-week period, the CFTC data showed a swing from a net-long of 7,333 contracts to a net-short of 67,405 contracts in the week ending Aug. 10.

Also of interest, the weekly close on the continuous Canadian dollar chart was $.8041 CAD/USD as of the week ending May 26 2015, only slightly higher than today's levels, while closing at $.7616 CAD/USD after 11 weeks when the net-short reached its highest level of 67,405 contracts in the week ending Aug. 11. After that date, the Canadian dollar continued to drift lower to a weekly low of $.6855 CAD/USD as of the week ending Jan. 19 2016.

Today's Canadian dollar June futures chart shows a fresh high in the current uptrend reached of $.7991 CAD/USD, the highest level seen since July 1 2015 on the continuous chart. Stochastic momentum indicators on both the daily and weekly contracts are in over-bought territory, leaving Canada's currency susceptible to a sudden sell-off and change in direction. Resistance lies nearby at $.8066 CAD/USD, which represents the 33% retracement of the move from the July 2011 high to the January 2016 low. Support may be found at the 20-day moving average, calculated at $.7797, which has been tested numerous times since the uptrend began in January.

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

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(ES)

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