Keeping an eye on the loonie and crude oil

August 22, 20219 Comments

Its been a while since I’ve taken a technical look at the Canadian dollar. In order to evaluate the loonie, we need to look at the strength of C$ vs the US$.  Then we should review how the USD is looking vs a world basket of currencies. We’ll also want to look at factors that can influence the C$, such as energy prices and the seasonal influences. I’ll make this blog less “wordy” and more “charty”. A picture says a thousand words, as is said.

C$ vs USD: Big picture

Long time readers of this blog will recognize this chart with my support and trend lines drawn on it. Its been highly predictive- considering that these zones were drawn about a decade ago. The C$ is heading towards an old resistance/ support line near $0.78. Will it hold? This is a price point we need to keep an eye on.

C$ vs. USD: Neartermed view

We can see that the price chart (weekly bars) briefly cracked $0.78 but managed to find its footing again. Meanwhile we can observe the “near death cross” of the 10/40 week SMA’s. I don’t pay a ton of attention to such  crosses, especially in a rather sideways or choppy chart as this. But…it is what it is. There are some signs of momentum (stochastics and RSI) becoming oversold. MACD is in full decline – which is a longer view on momentum. There may be some room for more downside according to the MACD indicator.

US$ vs International basket of currencies

The USD looks like it put in a nice double-bottom pattern. The neckline sits in the $93.50-$94 area. If that is broken–expect more upside for the USD. Its overbought according to the shorter stochastics and RSI momentum studies, but MACD is showing lots of upside potential is left. If the USD performs well on a relative basis to world currencies, that would imply pressure on the loonie.

Here is the USD seasonal chart – which suggests that the late fall can be bullish:

Here is the seasonality chart of the C$. Unlike the USD, the loonie can weaken from October to  December.

 

Current technical outlook for oil

WTI oil, as displayed on this chart which I have displayed over the years – has a support/resistance point at $65. That’s where it sits right now. As with my loonie chart at the top of this blog, I’ve been watching these lines for years, and they have proven very predictive. The distressing elements on this chart are the topping MACD study (which can be a negative) and a double- topping moneyflow momentum indicator (top pane).

Here is a seasonal chart for oil. As you will note, the picture isn’t pretty for oil (seasonality-wise), during the fall. The fact that oil impacts our dollar is a point against the loonie holding support near $0.78, per the top chart. To quote Investopedia:

Because crude oil exports account for a large portion of U.S. currency that’s earned by Canada, movements in the price and the volume of crude oil have a significant impact on the flow of U.S. dollars into the Canadian economy. When oil prices are high, the amount of U.S. dollars Canada earns on each barrel of oil it exports will be high.

Conclusion

As sports commentator Ralph Carpenter famously said “it ain’t over until the fat lady sings”. There are factors against the loonie and the price of oil in the nearterm. But until their respective support zones break, we need not act. However, one might keep a little powder dry just in case…

 

quote-teal

9 Comments

  • You mention that the support/resistance for oil is at $65 where it is now…but it is below that and broken through that level and now down at $62.

    Reply
    • You have a keen eye Alex–allow me to expand (and my bad for not doing so to begin with)–I take a break below support of anything less than 3 days (preferably longer) as a spike–immaterial, not of concern. In my second book, Sideways, I presented a rough “rule of 3” to help one from being whipsawed. That is, you only buy on a breakout or sell on a breakdown IF we see a break of resistance or support (respectively) by 3 days MINIMUM and 3%. I often wait a week. As such, oil had not broken $65 for 3+ days (it was only 2 days) and is today $65 again. I would want it to break by the minimum of 3% and at least a week or so before reacting.
      Again, I need to remember that not everyone reading this blog has read my past blogs or books describing such nuances. Thankyou for bringing it up

      Reply
      • Hi Keith,
        When you say 3% break of resistance/support, should that percentage depend on price volatily?
        3% of BCE and 3% of AC don’t look the same on the chart… Thanks.

        Reply
        • Absolutely Francisco – I use my 3 day and 3% rule as the ABSOLUTE LOWEST requirement to make a decsion. Yes, volatility of each stock totally matters!!!!!!
          Thanks for noting this
          In truth, my typical way of trading is more like a 3-5% breakout that lasts for at least a week. With break-downs (of support) I look at 1-3 weeks depending, as you say, on individual volatility and also look for 5+% that sustains that break in many cases.
          I’d like to give you an example. We recently bought a small (first leg in) position in the BMO china ETF a while ago at $23 after it looked to have bounced off of $22 support. Then, it fell. I said if it busts my $22-ish support level I will sell. It stayed below $22 for 4 days, but above $21. I didn’t sell. That’s because this is a volatile environment for Chinese stocks, and overall markets in August. Now its back to $22+. So I didn’t get whipped out.
          Your observations re volatility are correct. As such, my trading plan for this stock is: I will sell that stock if it breaks $22 by at least $1/ 5% ($21) and stays there for 1+ week(s). I will buy more (second leg in) if it goes back above $23 (> $22 support by 5%) and stays there for 1+ week.

          Reply
  • Hi Keith , what do you think about going long in energy for short trade ? In case oil holds above 65 $ .I see energy stocks sold off in last couple months about 20-25 % , l just took SU position, is about 26% off its high in June .

    Reply
    • I am of the opinion it will get back to the low / mid $70’s and- hopefully – eventually break that lid

      Reply
      • Yes , the timing is hard to pin point , its weak seasonality right now and market are over extended too. Energy stocks looks good to me but I think could pull back some more before winter/new year/A Santa Claus rally .

        Reply
  • What about Nat Gas stocks? They have come down quite a bit. Is there a play here?

    Reply

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