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USD/CAD

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Weak energy and metal prices continue to put pressure on the Canadian economy and its currency. Since the beginning of 2011, Canadian dollar has been losing ground against the U.S. dollar (for earlier analysis on USD/CAD). 1.3040 was an important resistance – levels that were seen during the 2008 financial meltdown.

In the last quarter of 2015, USD/CAD breached the strong resistance at 1.3040 and possibly completed a longer-term base formation. With the last couple of week’s sharp depreciation we can conclude that there is further weakness due for 2016. Unless the cross rate falls below 1.3040 levels in the following months,  the new trading range will be between 1.3040 and 1.62.

USDCAD

U.S. DOLLAR INDEX

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U.S. dollar strength is here to stay. Greenback had a strong recovery last week. Strong dollar will continue to put pressure on commodities, commodity currencies and also emerging markets. In other words, weak emerging markets, commodities and strong U.S. Dollar trend is likely to continue in the following months.

After its breakout from a decade-long consolidation in the last quarter of 2014, U.S. Dollar index rallied from 85 to 100 levels. Since March 2015, price has been pulling back to the strong support at 92 levels. Last week, the dollar index tested the strong support and rebounded sharply. Latest consolidation is more like a counter trend move in the context of a short/medium-term correction. Uptrend in the U.S. Dollar remains intact and once the choppy sideways consolidation is over we can expect the continuation of the uptrend.

US DOLLAR INDEX

MAJOR U.S. DOLLAR CROSS RATES

EURUSD

USDSGD

U.S DOLLAR VS. SINGAPORE DOLLAR

USDSEK

U.S. DOLLAR VS. SWEDISH KRONA

USDNOK

U.S. DOLLAR VS. NORWEGIAN KRONE

USDCAD

U.S. DOLLAR VS. CANADIAN DOLLAR

USDJPY

U.S. DOLLAR VS. JAPANESE YEN

GBPUSD

BRITISH POUND VS. U.S. DOLLAR

NZDUSD

NEW ZEALAND DOLLAR VS. U.S. DOLLAR

AUDUSD

AUSTRALIAN DOLLAR VS. U.S. DOLLAR

USD/CAD

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Commodity exporting countries currencies are weak against the U.S. dollar. Especially energy and metal exporters are showing significant weakness. One of those is the Canadian dollar. USD/CAD cross rate is now testing a strong resistance at 1.3040 levels. Breakout above 1.3040 levels can result in a runaway price movement to historical high levels. Though RSI, a momentum indicator, is not confirming the latest rally (more info on negative divergence on RSI). While in the short/medium-term the uptrend looks over extended, long-term traders/investors should keep a close eye on the critical resistance at 1.3040. Breakout above 1.3040 level can complete a massive multi-year base formation with a long-term price target of 1.60.

USDCAD

U.S. DOLLAR vs. CAD, MXN, TWD, TRY …

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Yes, it is a global trend and the dollar is gaining strength against most of the currency pairs. U.S. dollar index is trying to clear its 200 day moving average. Emerging market currencies have depreciated against the U.S. dollar over the past few months and seems like more and more weak signals are being generated by the recent breakouts. Here are some of the charts I shared earlier during the month and some new charts I want to draw attention to.

US DOLLAR INDEX

USDCAD

USDMXN

USDTRY

USDPHP

USDRUB

USDZAR

USDTWD

CANADIAN DOLLAR

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This currency has a special place for me. During my post-graduate studies in Canada, I used to follow it closely as I was converting U.S. dollars to Canadian dollars almost every month. When I decided to move to Canada in 2003 crossrate was at 1.4 levels. 1 USD used to buy 1.4 CAD. It has constantly moved lower over the past decade and at one point it reached 0.90 levels.

Today I’m analyzing Canadian dollar and giving Tech Charts visitors a “heads up” on the possibility of a strong breakout in the following days. Canadian dollar formed several consolidation ranges in the past year. In Aug-Sep period a sideways consolidation, in Oct-Dec period a contracting range (symmetrical triangle) and now over the past one month another sideways consolidation. Each breakout from these consolidation ranges was strong and was followed by a directional move. Canadian dollar has been trading in a range between 1.009 and 0.995. Price found support above the 200 day moving average, a bullish development. We are likely to see a breakout soon. Please note that volatility reached an extreme low reading and a breakout could result in a strong move. A break above 1.009 level will be very positive for Canadian dollar. A break below 0.995 will be negative. My suggestion is to wait for a confirmation and take action when one of these levels are breached.

CANADA S&P/TSX COMP INDEX & USD/CAD

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Here is a valuable analysis that would mainly interest Canadian investors and traders. Throughout the 3 years I’ve spent in Canada I’ve realized how important the crossrate has been for the Canadian economy and its export/import business. Currency advantage (when I started my studies in 2004, 1 U.S. dollar equaled 1.4 Canadian dollar), better education and multicultural society were some of the reasons why I chose Canada to study for my Masters degree in Economics. Though the latter two are still very much in place (good education & multicultural society), thanks to its commodity based economy and relatively better banking system + more stable real estate market, the currency advantage  has disappeared with the Canadian dollar gaining strength.

Strong CAD helped importers of goods and services for the past decade. This relationship might be changing. Traders and businesses should watch out for a possible depreciation in Canadian dollar if the above analysis were to be confirmed. USD/CAD might be forming an inverted H&S chart pattern (base formation, bullish for USD) and a breakout above 1.065 can result in further depreciation of the Canadian dollar. It is interesting to see a symmetrical triangle forming as the right shoulder of the 2 year-long inverted H&S pattern. What’s more interesting is that the same symmetrical triangle has also formed on the S&P/TSX Composite equities index.

Conclusion: Charts are showing bullish signs for the USD and bearish signs for the equities. However we should wait for strong confirmations. Breakout from the symmetrical triangle consolidation ranges will confirm the next directional movement on both asset classes. Strong support/resistances for the equities and currencies are the 200 day moving averages (12,450 for S&P/TSX Composite Index and 1.00 for USD/CAD). As long as S&P/TSX Composite stays below 12,450 and USD/CAD above 1.00 we will expect strong U.S. dollar and weak equities.