The Canadian dollar continue to follow a short termed price channel that I have noted on this blog in the past. The potential for the loonie appears bearish, with a possible target of the last low (below $0.70 USD).
A fairly reliable indicator for determining if the loonie is oversold or not is sentimentrader’ s “optix” indicator. They do optix composites on many markets. The indicator is a compilation of sentiment surveys from Bloomberg, Market Vane, Ned Davis Research, Consensus Inc, Daily Sentiment Index, and Larry Williams. These companies (and individuals) independently survey sentiment (Bulls vs. Bears) on various markets – then sentimentrader puts their findings together into one comprehensive index. As you will see on the chart below, the optix indicator has been pretty good at spotting peaks and troughs on the loonie. When the optix composite gets above the top line, it indicates excessive optimism (sell) – and if it gets below the bottom line it indicates excessive pessimism (buy).
At this time, the optix is farily neutral, meaning that the loonie is not oversold yet from a sentiment perspective.
The USD continues to be trapped in the pink “box” that I’ve noted many, many times on this blog. Below is a chart of the greenback vs. a basket of world currencies. As you will see, the USD needs to break $104 “world currency units” – should it do so, the USD would have the potential to stage a huge jump into the $120 area, per my annotations on the chart. At this time, however, the USD remains trapped within the box.
For comparatives, I’ve posted sentimentrader’ s optix composite on the USD. Its been flirting with the excessive optimism (sell) line. As the dollar reached the top of my trading box, the optix indicator swung into overbought territory.
Putting it all together, it the indications are for continued weakness on the loonie, although the near term might not be too bearish for our currency. The USD may have trouble in jumping through the $104 zone on its world currency value for a while, which might slow the pressure on the loonie. Nonetheless – we are substantially overweight in USD stocks at this time, given our preference for that market, and the questionable outlook for the loonie over the next 6-12 months.
Whats your short term call on USD and loonie Keith ? Are you saing USD looks like will double top at 103-104 and could go back down again in its trading channel ? I am looking for some short trade , sell USD at 103 -104 and buy back at 94-95 ish . I wonder what was the Fed funds interest-rate in 2001 -2002 when USD hit 120 ?
There is some chance that in the very nearterm the USD is overbought and could very well pull back–but any pullback may not last too long. May be worth a short termed trade – although as a mid-termed outlook CDN manager, I am long the USD (60% weighting) in our equity platform due to the reasons outlined in the blog (better stock choices in their market, better mid-termed outlook for the USD vs. CDN)