Short Term Trading forex trading links forex trading books market statistics trader values euro and us dollar Shocks Crashing Canadian Dollar: Breakout or failure?

Friday, 8 July 2011

Canadian Dollar: Breakout or failure?

As the US dollar is approaching the low of the past 3 years against the Canadian dollar, weakness appears to be short lived. In fact a move above 0.9725 will lift the price to 0.9860, eventually 1.04, if the resistance at 0.9950 is broken. Only a decline below 0.9340 will take the price to lower levels.

Seasonal components support a rebound of the U.S over the short/medium term, as well as market sentiment indicators. The European debt crisis is not over yet. Some banks are under siege and few nations are struggling to survive. Speculation is mounting in the Old continent and risk aversion is again directing money into the safe heaven currencies: the U.S. dollar and the Swiss Franc.

In addition, commodity prices appear to be prone t o a bearish correction, after months of increases, and this should contract the Canadian dollar performance over the next months. The Canadian economy is losing momentum. Household debit stays high, while housing market is mild. Discretionary retail sales have been up only moderately throughout the first part of the year, while consumer sentiment remains subdued. Finally, government stimulus spending will be a major issue in 2012, as its effects are declining.

The long term picture should, nonetheless, penalize the U.S. The cyclical components still favour a bearish U.S. dollar over the major currencies (plase see U.S. Dollar Trend). A bold fiscal position in Canada, along with the government’s dedication to reduce the deficit should help the Canadian currency in the coming months. Business investment is strong and the Canadian central bank is expected to tighten monetary policy before the Fed.

Written by Angelo Airaghi -

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