Canadian dollar may have more downside

December 5, 20132 Comments

 

Back in early November, I suggested that investors keep some USD exposed securities in their portfolio, and “snowbirds” (people who go south to escape the Canadian winter) consider buying the USD. Here’s the link: https://www.valuetrend.ca/?p=2553

C$ Sentiment

So far, that call was a reasonable one. Recently, first level support at just over 0.94 was cracked for the C$. There is a second less important level, as seen on the chart below, at just over 0.93 that the loonie is now attempting to hold. Should this crack—and I think it will, the target would be in the high 0.80’s for the C$.

C$

The contradicting evidence to that opinion would be sentiment. Note on the Public Opinion chart (top of page) for the C$, provided by www.sentimentrader.com, that sentiment is at an extreme low for the C$. Similar levels in sentiment readings were seen in early 2009, mid-2011, and early 2012. All three of these extreme readings in bearish sentiment resulted in a rally for the C$ against the greenback. Despite the rallies that followed the extreme bearish sentiment readings, the C$ ultimately trended down after the 2011 and 2012 readings. Thus, one could argue for a near termed rally on the C$. But my bet is that any rally will only be a short movement off of an oversold condition. The outlook is not overly encouraging for our loonie thereafter – given the weaker looking mid-term trend. I continue to endorse some diversification into the USD for Canadian investors.

 

2 Comments

  • USING THE FIBONACCI LINES, DO YOU BELIEVE WE COULD RETRACE DOWN TO THE 162.5 ON SPY OR A 10% CORRECTION (MAY-JUNE 2013 PULLBACK AS WELL AS THE AUGUST 2013 SUPPORT LEVEL) BEFORE WE GET THE BIG PUSH INTO SPRING 2014 TO THE 196 LEVEL (THE 100% FIBONACCI LEVEL)?

    Reply
    • Jean-Pierre, I don’t use Fib retracements etc. Its a personal prejudice of mine–I don’t buy into fib calculations as anything except random coincidences if they happen to work.
      Having said that–there’s always room for a correction – looks like we are getting one now. Likely a shallow one though. Santa rally will start in a few weeks- look at the near termed correction as a buying opportunity.

      Reply

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