Follow the big red line

The dominant trend for the loonie has been indisputably down since 2011. Follow the big red line on the chart below. Any questions?

Loonie Technical Analysis-Chart indiciating Canadian currency remains in a long-term downtrend

 

This downtrend, BTW,  coincides with the 2011 commodity peak and steady decline. As most of you are probably aware – the loonie has a very positive correlation in price movement to oil in particular, and other major commodities that we export.

Neartermed picture

The Canadian dollar has broken out of the neartermed price channel noted on this blog in the past. This breakout provides a temporary bullish target for the loonie back to its old major point of support – which now represents its major point of resistance. That support, originally established in the 2008/2009 oil crash, was tested successfully one last time in early 2015.

In mid-2015, that $0.79 support level was cracked. By October 2015 and then again in early 2016, as oil attempted to rally, the loonie tried a run at breaking above $0.79 (now resistance) – unsuccessfully.

My target for the loonie is for a revisit of the $0.78 – $0.79 area. I would give a very thin chance of it reaching the dominant downtrend line at $0.80. I would be willing to bet that we will not see a test of $0.84 resistance as noted on the horizontal dashed green line on the chart. If you held a gun to my head and made me guess – I would suggest that after a brief test in the $0.79 area we will see a return to the dominant downtrend. It is my strong opinion that the current upside is a counter-trend rally—and not a new beginning for the loonie.

Again, with the gun to my head, I would guess that the loonie will hit that peak price by early fall. Note on the seasonal chart below (equityclock.com) that most of the strength for the loonie is in the spring, with a brief last hurrah possible into the September – November time period.

Canadian Dollar Futures Seasonality - Loonie Technical Analysis Indicator

I’m putting my money where my mouth is. I expect to convert some personal capital to USD for a property I’m building in Florida as/if/when we see around $0.79. It’s my belief that the potential for a move beyond that level is low – and the potential for a breakdown from $0.79 will be significant.

 

6 Comments

  • Great perspective! I suspect some of the noise in the US with the slow progress on healthcare and tax reform is also negatively affecting the US $ and therefore helping the C$ short term too. I also don’t see the price of oil getting better anytime soon especially with Trump’s push for greater energy independence and planned regulatory changes.

    Reply
  • In keeping with the monetary policy topic, what are your thoughts on the FOMC suggesting an unwinding of their balance sheet (the reverse of quantitative easing). The end result should be a rise in yields as their balance sheet consists of high quality debt(?). My main question would be how this would impact equities. If QE was positive for equities wouldn’t the opposite be bad for equities. Are there any prior historical cycles of monetary policy going from quantitative easing all the way back to normal, and the impact that had on the market? Thanks Keith!

    Reply
    • Bob–thats a question for an economist–I’m a mere technical guy!

      Reply
  • Keith where will you go to convert CDN/USD. The banks are robbers.

    Reply
    • Yes banks use it a massive profit spread–it is terrible
      I do my conversions and for my clients very close to spot–the spread is tight for me

      Reply

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