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Canadian Dollar: USD/CAD (CAD=X) Bears Still in Control

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Canadian Dollar: USD/CAD (CAD=X) Bears Still in Control

In Monday night’s federal election, Prime Minister Justin Trudeau fought off a stout challenge from Conservative candidate Andrew Scheer to win his second term, with the generally strong Canadian economy playing a heavy role in supporting the incumbent. As we noted in last week’s election preview report, the economy performed admirably under Trudeau’s first term, with unemployment hitting a 40+ year low, GDP growing at among the highest rates for a developed country, and the Canadian stock market providing strong returns.

While Trudeau was ultimately victorious, he didn’t emerge unscathed. His Liberal party actually lost the popular vote, as well as its Parliamentary majority, and will therefore have to form coalitions to legislate, with the pro-labor New Democratic Party (NDP) emerging as the most likely partner. There’s no doubt that Trudeau’s “mandate” has been weakened, but he has nonetheless vowed to pursue a left-leaning agenda focusing on social issues, deficit spending to address inequality, and aggressive environmental reforms.

Market Reaction

A narrow Liberal victory was the market’s expected scenario, albeit with a heavy dose of uncertainty, so the reaction in the loonie and Canada’s stock market has been relatively subdued so far. Looking ahead, Trudeau’s agenda is likely to lead to further deficit spending to support social, inequality, and environmental reforms.

That said, the country has had a relatively balanced budget in recent years, with its government deficit running at less than 1% of GDP (by contrast, the US’s deficit was last clocked at nearly 4% of GDP and has been rising in each of the last four years); put another way, Canada’s budget could afford a dose of deficit spending, and it may serve to insulate the economy and stock market from external shocks including falling oil prices or declining international trade.

After falling nearly 300 pips from peak to trough over the last two weeks, USD/CAD is seeing a slight bounce at the start of today’s North American session. As it stands, the RSI indicator is confirming last week’s breakdown in price and the MACD is signaling strong bearish momentum, trending lower below both its signal line and the “0” level. Moving forward, the technical bias in the pair remains bearish as long as rates hold below previous-support-turned-resistance at 1.3135, with potential for a move down toward the year-to-date low at 1.3015 in time.

Technical Indicators

Overall, the bias in prices is: Sideways.

By the way, prices are vulnerable to a correction towards 1.32.

The projected upper bound is: 1.32.

The projected lower bound is: 1.30.

The projected closing price is: 1.31.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 25 white candles and 25 black candles.

A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 9.7348. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a sell 10 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 32.98. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 77 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -126.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a sell 9 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 7 period(s) ago.

Rex Takasugi – TD Profile

FOREX CAD= closed up 0.001 at 1.309. Volume was 24% above average (neutral) and Bollinger Bands were 25% wider than normal.

Open     High      Low     Close     Volume___
1.309 1.312 1.306 1.309 86,521
Technical Outlook 
Short Term: Oversold
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 1.32 1.33 1.33
Volatility: 5 6 6
Volume: 62,501 67,994 85,975

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

FOREX CAD= is currently 1.4% below its 200-period moving average and is in an downward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods. Our volume indicators reflect moderate flows of volume out of CAD= (mildly bearish). Our trend forecasting oscillators are currently bearish on CAD= and have had this outlook for the last 4 periods.

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