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Watch For This In the Canadian Dollar


The June Canadian dollars futures (6C) contract has been on a steady ascent since hitting a low of 0.6819 in January. During that time the price has been confined to a tight rising trend channel. As commodities have risen in 2016, so has the Canadian dollar.

The strength in commodities indicates the long-term downtrend--which took crude from above $100 to near $26--could be over, and a long-term uptrend is beginning. If that's the case, it is also bullish for the Canadian dollar over the long-term.

Right now though, watch that trend channel. If commodities, and mainly crude oil, begin a corrective phase, so will the Canadian dollar. The long-term trajectory is still up, but the correction will provide a Canadian dollar buying opportunity at a better price, with the expectation that the CAD will continue to move higher once the commodity correction is over.

While the Canadian dollar could continue to edge higher before correcting, that correction will eventually come. Pulling back about 50% to 60% of the prior advance (currently from 0.6819 to 0.8025) is typical, putting a buying opportunity for the long-term (emerging) uptrend between approximately 0.74 and 0.7280.

Figure 1. June Canadian Dollar Futures, Daily Chart

The start of the correction will likely be signaled by a drop below trend channel support. The support changes over time, since the trendline is slopping, but currently that support is at 0.7835. A short trade is possible on the correction, but the main trading opportunity is likely to come from buying on the pullback in the 0.74 to 0.7260 region (a more precise trade area will be discussed in a future article as the price approaches that region), with the expectations that the price will continue to advance toward 0.84 following the pullback.

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