By Jake Fillipp
Loonie weakness looking stretched
The Canadian Dollar has been a stellar performer against its downtrodden U.S. counterpart this year. After reaching an all-time low of just above .9050, the USD/CAD pair has seen a vertical month-long shake-out to the upside. From a technical perspective this rally is looking tired as the price has stalled at the 1.0200 level, corresponding to a daily downtrend resistance line dating back to April of this year when the pair topped out at 1.1800 and began its rapid seven month 1800 pip decline. This level of resistance is reinforced by the .618 Fibonacci retracement level from the August swing high at 1.0879 and the all-time low reached in the first week of November. Furthermore, daily oscillators rolling over from extremely overbought conditions point to a potential move lower in the short-medium term. Traders will also be watching oil and gold prices closely for further indications on the direction of the CAD. Strength in oil above $91 and $93.75 and a close in gold above $810-812 could lend further support to sustained Loonie strength as we enter thinner holiday markets. A daily close below the post-BOC rate decision break-out level of 1.0100 is the first sign that this rally could be coming to end. An initial level to watch on the downside should the CAD strengthen will be .9780-.9800 initially. A break of that level could bring .9500 back into focus as we move into the New Year. We believe an attractive risk-reward opportunity is presenting itself here to build medium-term short positions again the 1.0080-1.1000 level, with an initial target of .9800 and a potentially more extended move south the .9500 area. Risk is fairly well defined against Mondayâ€™s high of 1.0220, while more conservative traders can use a stop closer to Fridayâ€™s pre-employment release high of 1.0155. A break of the uptrend line going back to November 14th shown in the chart would support the notion that the USD/CAD will weaken and present another opportunity to initiate fresh short positions. Watch for a close below parity to bring profit-taking selling into the market from medium term players who picked the bottom last month and bought the subsequent break of the daily downward sloping trend line at .9500 the second week of November. Remember that Forex trading (off-exchange foreign currency futures and options) carries substantial risk of loss, is not suitable for every investor and that stops and other risk-limiting strategies may not be effective as market conditions could prevent such trades from being executed. Seasonal and geopolitical events are already factored into market prices.
USD/CAD 240-Minute Chart
USD/CAD Daily Chart
Charts courtesy of FX AccuChart
Brewer Futures Group, LLC.
200 South Michigan Ave, 21st Floor
Chicago, IL 60604
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