Canada Markets

Canadian Dollar Trading Lower This Week

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The Canadian dollar is poised to close lower for the fourth consecutive session on Wednesday after reaching an 11-day high on Friday while failing at trendline resistance. The spot Canadian dollar could be poised to fall back to October lows and a possible test of retracement support at $.77608 CAD/USD. The middle study shows momentum indicators rolling over into a downtrend, while the histogram on the lower study shows noncommercial traders reducing their bullish net-long position for the fourth consecutive week and to the lowest point in eight weeks. (DTN graphic by Nick Scalise)

After reaching a 14-week low, as of Oct. 27, the spot Canadian dollar rose 1.9% to a high of $.78919 CAD/USD, as of Nov. 10, while failing at trendline resistance drawn from the Sept. 8 high, only to close at the lower-end of that day's trading range in negative territory. The Canadian dollar has faced weakness each day this week, with the stochastic momentum indicators rolling over (second study of attached chart) pointing to a move into a downtrend.

Given further weakness, the loonie may continue to slide to a test of the lows reached in late October, with potential support at $.77608, which represents the 50% retracement of the move from the May low of $.72582 CAD/USD to the September high of $.82634 CAD/USD. A breach of this support could result in a further slide to the 61.8% retracement line seen at $.76422 CAD/USD. Trendline resistance lies at $.78684 CAD/USD, while the 20-day moving average at $.78445 continues to pose a challenge and remains in a downtrend of its own parallel to the downtrend line.

The blue bars seen on the histogram of the lower study shows noncommercial traders or investors losing confidence in the Canadian dollar, with the most recent CFTC report showing the net-long position held by this group falling in four consecutive weeks to 50,889 contracts, the smallest net-long held in eight weeks. This group has played a major role in the wild swings in the loonie, holding the largest net-short or bearish position on record in the month of May, while by the week of Oct. 10, had reached the largest net-long position seen in almost five years. The swing of 175,501 contracts, from 99,109 net-short in May to 76,392 contracts net-long, rivals the 187,794-contract swing realized in 2012, which is the largest swing recorded. Further selling by this group could be the rationale for a further slide to a test of support.

Dollar traders will be focused on this week's Consumer Price Index release by Statistics Canada on Friday, while North American Free Trade Agreement negotiations are set to resume on Wednesday and headlines could easily lead to continued pressure on the loonie as the three countries strive to find middle ground in the ongoing trade talks.

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

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