Can Falling Crude And Momentum Keep The Canadian Dollar Plunging?

Daily Forex Technicals | Written by DailyFX | Oct 23 08 14:30 GMT |

The Canadian dollar has been uniformly weak across the currency market with tempered interest rate and growth forecasts meeting the reality of a sharp drop in commodity prices (which share a frequent correlation with most Canadian dollar pairs). Still firmly steeped in its aggressive selloffs - but with some pairs meeting some form of support - our DailyFX Analysts look for setups that either hold with the trend or take advantage of a potential reversal. Chief Strategist - Antonio Sousa My picks: Remain Long USD/CAD Expertise: Fundamentals and Sentiment. Average Time Frame of Trades: 1 day to 3 months Despite the recent speculation that the OPEC will slash oil production by 2 million barrels a day in an effort to keep oil prices from falling any further, I expect lower energy prices going forward caused by a severe slowdown in the global economy. Having said that, I remain long USD/CAD since 1.10 and I expect the U.S. dollar to rise further against the Canadian dollar on speculation that a global recession will have a negative impact in the export sector of the Canadian economy. On the other hand, lower energy should help the U.S. economy by alleviating pressure in the U.S. consumer which makes nearly 70 percent of the U.S. economy. Moreover, a significant deterioration of interest rate differentials in favor of the U.S. dollar is likely to keep the Canadian dollar under pressure going forward. In fact, according to overnight index swaps, which measure interest rate expectations for the next twelve months, while the Bank of Canada is expected to cut rates by 100 bps, the Fed is expected to keep rates unchanged. Currency Strategist - John Kicklighter My picks: AUDCAD Breakout Expertise: Combining Money Management with Fundamental and Technical Analysis Average Time Frame of Trades: 3 days - 1 week The Canadian dollar has been extraodinarily weak over the past month. In fact, a look at a monthly chart reveals the incredible momentum that has driven the currency to new lows. However, the significant distance that the bears have covered in such a short time and the modest shift in fundamental speculations may also suggest this market is over-extended. This may be true, but I will let the market make the decision for me. My interest is in AUDCAD, which has marked a choppy rebound and is deeply set in very significant technicals - which is perfect for setting a breakout trade. The dominant technical formation I am looking at is a rising wedge that has developed from the October 8th swing low. The support component of this setup now stands at 0.83 which coincides with a building, temporary floor for the past few sessions. Resistance at 0.85 is noteworthy as a pivot level and a heavy 50% retracement of the July 15th to October 8th downswing. Fundamentally, the Canadian dollar has been driven lower by a steep drop in crude and other commodity prices; however we know that Australia is another major exporter of natural resources. What's more, the shift in rate expectations (the RBA surprised with a 100bp cut and the BoC joined in the coordinated 50bp easing with a follow up 25bp of its own) and growth forecasts (both have seen expectations for positive growth to hold out while the rest of the world failed curbed) has impacted the nation's evenly. Obviously there will be speculation over which economy will hold up best and recover first as well as which will turn their interest rate cycle quickest; and therein lies the fundamental tension that will lead to a breakout. I will place entry orders a modest distance outside 0.85 and 0.83 and let the market trigger the position depending on which direction it ultimately chooses. A conservative stop would be place outside the opposite side of the range - but that would be a very wide stop and targets would need to match. Since the levels are clear, I may approach this with a more aggressive clip. Currency Strategist - Terri Belkas My picks: Short USD/CAD Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 1 - 3 Days USD/CAD is currently holding above long-term resistance, which may provide a decent short-term selling opportunity. Though this is clearly against the bullish trend, risk/reward potential shows that it may be worth it. The zone of resistance I'm looking at is between the 50% fib of 1.6190-0.9056 at 1.2618 and the May 2005 high of 1.2731, so stops should be placed above the high. A conservative target would be near 1.2350/58, but if the pullback is sharp enough, I think we could see a drop toward former resistance at 1.2120 where we also have the 61.8% fib of 1.1740-1.2740. Currency Analyst - John Rivera My picks: Long USDCAD Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 1-2 Weeks The USDCAD has been on a tear, for that matter that "Loonie " has continued to lose ground to most currencies. However, as much as I think a retracement may be coming in the short term, I must maintain my bearish outlook for the Canadian Dollar. I have maintained this bias the past two weeks and it has served me well. I was burnt last month thinking the “loonie” would fight back. Lesson learned. Although, the other com-dollar currencies were looking like they might stabilize but their recent weakness underlines the grim outlook for the global economy and the demand for raw materials. My target is 1.3000. Currency Analyst - David Song My picks: Short CAD/CHF Expertise: Fundamentals and Technicals Average Time Frame of Trades: 2 - 10 Days The CADCHF has held within a broad range between 0.9370 and 1.0100 over the past two weeks, but has fallen below the stated level to hit a low of 0.9173 over the last 24 hours. In addition, the 50 day SMA has crossed below back the 100 day SMA, and may cross below the 200 day SMA over the next few days, which has favored a bearish outlook for the pair. From a fundamental standpoint, falling oil prices paired with the flight to safety has certainly fueled selling pressures for the Canadian dollar, but as OPEC is anticipated to cut production by one million barrels, the loonie may get a little bounce to the upside. However, I anticipate the downward momentum to lead the pair lower over the stated timeframe, and we may see the pair test the 6/15/04 low of 0.9076 over the following week. 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