I’m Watching This Longer-Term Setup
Today’s
article is being written by Bo Harvey.
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What a choppy week in FX, as
the dollar can’t seem to decide whether or not to break out of the multi-year
downtrend channel it has been in (see my
commentary from last week). Needless to say, this week should
hopefully give us better confirmation one way or the other, as of now most
currencies are entering into ranging moves against the dollar, consolidating
after their recent downtrends.
Looking ahead, one pair I am
watching for a future long-term sell entry point is in the USD/CAD (Canadian
dollar). Although the trade is not quite there yet, it appears to be
approaching. Commodity prices have gotten absolutely hammered recently, and
along with them the commodity currencies have taken a tumble. It’s my suspicion
that we are getting very near an oversold bounce in commodities, which should
benefit the CAD. In addition, the Canadian dollar is more leveraged to the US
economy than the other commodity currencies, the Aussie and Kiwi dollars (which
are more dependent on the Chinese growth story, it seems), so if US job growth
picks up steam in the months ahead it is reasonable to expect that the Canadian
economy will benefit, and, perhaps, interest rate expectations will begin to
increase there, which could be bullish for the currency if the interest rate
differentials between the CAD and USD begin to widen. Last and certainly not
least, the technical picture is beginning to set up well as a short on a weekly
chart (i.e., long the CAD, short the USD.
^next^
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The 1.40-1.43 level contains
several confluence levels which include the 38% retracement of the 2002
high—