USDCAD trend reversal?

If we can break the 1.079 mark (which price action seems to be in favor of) I think we will hit at least the 1.04 area with ease. Price promptly rejected the 1.079 area but was unable to make a strong bullish rally, showing that the bears seem to be in power.

Yes, or price could be beginning to range. This often happens after a large volatility period. I'm not claiming to be right- just offering an alternate viewpoint!

Kris Matthews

Level to watch , longs positions are looking great.

Price is ranging to the right.

Can it range to the left??

Thats called backtesting

Scotiabank thinks USD/CAD will continue to go down based on commodity price appreciation. On the other hand, the people over at UBS think that USDCAD downtrend is overdone and due for a correction since BOC is worried about a strong CAD during tight times even though "the worst may be over." You can check out their arguments, but I see the CAD either ranging or having a temporary correction to the upside as these factors "push and pull" the pair.

All the best,

Kris Matthews

Btw, I like the "backtesting" comment by BigWave

Hi,

I don't think so, Kris Matthews.

As you can see the USD sentiments itself has been changed. USD then will be stronger on the basket of currencies. CAD has been devalued.

USD/CAD will be bullish. You can see it soon, hope to kiss 1.1050 next week.

Pham.

Hi Pham,

I hope so- I'm actually positioned to the long side, and I meant USD/CAD positioned to the upside, not CAD. When I say "ranging" I'm talking about large multi-month ranges, not little 100 pip ranges. I trade on larger time frames. The risk is like you say, the USD sentiment change as well as BOC intervention threats which may lead to a swift move up. I don't think one should say it as if it's a certainty though. Thanks for the note.

Kris

FYI.

"For the second day in a row, the U.S. dollar gained strength against the loonie. Oil http://www.fx360.com/App_Common/images/chart-icon.gif prices are lower which contributed to the move but the primary reason why the Canadian dollar weakened was because of the sharp disappointments in economic data. The Canadian unemployment rate held steady at an 11 year high of 8.6 percent but the number of Canadians filing for unemployment benefits jumped by 44,500 last month, 3 times worse than the market’s expectations and 6 times more than the previous month. Barely any sector of the economy managed to escape reporting job losses with both full and part time jobs declining. The largest job losses were suffered in Quebec where many of the high tech and manufacturing companies are located. The IVEY PMI report also dropped from 58.2 to 51.8 which indicate that the pace of growth in the manufacturing sector has slowed materially. These disappointments put the recent optimism of the Canadian government into question. With nothing other than the Canadian trade balance due for release next week, we would not be surprised to see a further recovery in USD/CAD. Meanwhile it was quite interesting that the Australian dollar weakened against the greenback while the New Zealand dollar strengthened. Last night’s Australian economic data fell short of expectations with construction sector PMI plunging deeper into negative territory and Australia announcing that they will be resuming sales of inflation linked bonds. Hawkish comment from the RBA failed to help the currency. There was no economic data from New Zealand and perhaps no news was good news".

Hi guys, thought this Sunday post from my blog might be relevant. Also, Paul Stafford made a comment with more supporting details to my and Pham's argument. (Btw, thanks for the FYI post, Pham)

Kris

USD/CAD imbalance in the making?

http://thegestaltshift.com/wordpress...ey-300x193.jpgCourtesy of The Province



Ok, everyone knows I hate to make bold claims because, as a trader, my opinion could change in a heartbeat. However, I like to point out potential imbalances that could turn into trades. One such imbalance that I see in the making is the recent rally of the Canadian Dollar. The currency has rallied considerably against the Dollar, in fact, more so than any of the majors over the last month. The rally, which has finally taken a breather, seems to be largely due commodity (namely energy) price increases over the same period as well as the realization of Canada’s much better capitalized financial system.
The recent rally seems overdone for a number of reasons:

 

1. While CAD tested new highs (USD/CAD lows), crude did not even attempt to test its June highs.
2. BOC Governor Carney has repeatedly expressed concerns over a strong CAD
3. Sentiment is shifting: Evidence this week shows traders are starting to reward the USD on good US news instead of buying “riskier” currencies against the dollar. When the “rules of the game” start changing, trend reversals are often not far ahead.
4. Key Canadian economic data have both shown much weaker results than expected (Ivey PMI: 51.8, Employment: -44.5K) in contrast to the positive results seen in the US data counterparts.

The key opposing risk to this analysis is if commodities start to stage another rally. If you would like to read more on this argument, check out Scotiabank’s monthly report for August 2009 at the fx bank research page. Otherwise, it’s advisable to play this by either putting on a small position and buying dollars as USD/CAD starts climbing or waiting until sentiment really starts to shift and allowing the move to show itself. In order to protect against the risk that the timing of this analysis is off, one of these methods is necessary.
As usual, these posts are here to provide a perspective, and not for recommending trades.
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One Response to “USD/CAD imbalance in the making?”

 

1. http://www.gravatar.com/avatar/39026...6%3Fs%3D32&r=GPaul Stafford says:
   August 10, 2009 at 9:28 am
   Hi Kris,
   Here are several additional reasons to believe the CAD rally might be short-lived
   1) the poor BoC yield. AUD is still at 3%, but CAD is at 0.5%.
   2) automotive sales will tank after the junker trade in program ends.
   3) longer term, commodities won’t stage a sustained rally (I think Q4 will not be good) until employment actually shows increases instead of smaller decreases.
   IMHO, the best way to play this is with a bull call spread on $/CAD with a 6-8 month expiry. Long at 1.08, Short 1.15 or 1.16. you could almost get the whole position for free if you also sold a put at 1.0
   Paul S
   

There are a couple of caveats to the notion that commodities must go higher in price. That the Fed must throw caution to the wind and funny money is the coin of the republic.
First the US government must continue to borrow huge sums of money to Fund the Obama administrations spending plans. A constantly depreciating USD is not an enticement for lenders to fund the US deficit. So a stable USD is in the political interests of Pres. Obama.

Secondly since the Russian economy is in shambles they need money. A resource rich nation like Russia can have an impact upon world commodity prices by unloading product.

Third any recovery will most likely not be very robust which means commodity prices pushed up by financial institutions on inflation fears may have overplayed their hand.

USDCAD moving through ascending RSI channel. Sellers in charge. Price headed toward 1.0640.

We will see what happens with the Fed today. I think they will prefer a steady as it goes policy looking forward to recovery taking hold.
They must be pleased with the recent purchases by investors in the bond market.
If they suggest continued rampant stimulus Bernanke may be risking throwing the USD out the window and soaring market interest rates
much as under Carter when he disregarded the caution signs.

Bernanke may be at a better place then Mervyn King who still has to dig the UK out of a deep hole. Europe is flatlined and Mr. Trichet will not raise for the near future.

Who knows for sure? Last Friday the USD strengthened along with the equity markets for a change. Maybe we will actually return to a normal market this year, where a growing economy is a good thing for a currency.

Newbie here.

Noticed a breakout Bear flag on the hourly chart on USD/CAD. Time to Short?

^^ I was thinking the same thing, not sure if I am going to short it yet though.

so far the trend is still in play. I agree with the article on the last page but sometimes it takes a long time before the fundamentals dictate price. Sometimes it happens over night but for now lets just go with the trend.

Yes, that's why in addition to fundamental imbalances I look for a change in sentiment. We're starting to see a change in sentiment in the big picture as USD is starting to rally on good US news, but we haven't seen any sustained USD/CAD upmoves. When that happens I'll put positions on. Otherwise, we're still ranging after the recent downtrend in USDCAD.

Cheers,

Kris Matthews

Clean breakout of the 109 level on the non existence of inflationary pressure. Since the Cad was bulled up on inflation fears and hikes in oil, might be a bunch of people on the wrong side.
110 certainly looks possible, close above 110 is bullish USD/Cad mid term in my view.

This has to be the trend change. Buy weakness NOW! COT data shows commercial traders extremely short CAD and extremely long USD, they are never wrong may be a little early but never wrong, this is Tuesday Aug 11 Data.