Canada Markets

Canadian Dollar Shows Signs of Weakness

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The Canadian dollar active weekly chart shows the exchange with the U.S. dollar continuing to respect resistance from the downtrend line that's been in place since September 2012. Last week's trade resulted in a bullish outside week, with trade engulfing the trading ranges of the prior three weeks and a close near the top of the range, although Tuesday's trade failed to show follow-through buying. The lower study indicates a decline in the net-long position held by investors. (DTN graphic by Nick Scalise)

Wednesday's interest rate announcement from the Bank of Canada and the likelihood that Canada's overnight rate will be left untouched at 1% weighed on Tuesday's market, with current trade in the electronic dollar down 50 basis points at $.9145 CAD/USD, with one Dow Jones interview suggesting this rate may not be touched until mid-2015.

Today's weakness comes after a potentially false bullish signal was posted in last week's trade. Last week's trading range of 159 basis points on the September contract, with a close near the upper-end of the range, resulted in what is normally viewed as a bullish outside week. Not only did this bar engulf the trade of the prior week, but it engulfed the range of the prior three weeks. The signal also becomes more relevant when volume is considered (not shown). Volume was considerably higher last week than the previous two weeks, while also the highest in 23 weeks, which could be viewed to lend further support to the bullishness of the outside week trading signal.

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The lower study indicates a histogram of the net position held by investors in the Canadian dollar. After holding a net-short position in the Canadian dollar, or in other words, betting on further downside potential, investors have held a net-long position in the past nine weeks. This position, however, has been pared from a high of 22,691 contracts for the week of July 29, while the most recent data shows this position declining for the past four weeks while currently reported at a net-long position of 5,663 contracts. Investors are clearly losing hope in the Canadian dollar's potential.

The weekly active chart has rallied from a low of $.8845 CAD/USD in the week of March 17 to a high of $.9399 in the week of June 30. The first level of support for the market remains at $.9122, the 50% retracement of the move higher. This level has provided support for prices over the past five weeks. Should this level be breached, a move below last week's low of $.9088 could lead to a further slide to the 61.8% retracement at $.9057 CAD/USD. Resistance remains at $.9251, which represents the downward-sloping trendline in place since September 2012.

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

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(CZ)

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