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Loonie Takes Big Step Toward Technical Objective

Marc Chandler profile picture
Marc Chandler


  • USD has been carving out a head and shoulders pattern against the Canadian dollar.
  • The neckline was retested yesterday and the follow-through selling materialized today after an outside down day yesterday.
  • The measuring objective is near CAD1.2475.

For a little more than two weeks, we have been monitoring the formation of a possible head and shoulders top in the US dollar against the Canadian dollar. The neckline broke a week ago. It is not uncommon for the neckline to be retested after the break. That was what happened yesterday.

The US dollar recorded an outside down day yesterday. It traded on both sides of Friday's range and closed below Friday's low. The has been follow-through selling today.

The pattern was formed in March and the neckline, which we drew on the Great Graphic that was made on Bloomberg, is found at CAD1.28. The head peaked near CAD1.3125. Flipping it over at the neckline shows a measuring objective near CAD1.2475.

The US dollar had rallied in February before forging the topping pattern. The neckline is roughly the 38.2% retracement of the February rally. The 50% retracement (~CAD1.2690) was met yesterday. Today's low meets the 61.8% retracement near CAD1.2585. Several of the technical indicators we use are getting extended, but no sign of divergence or that a low is in place.

The speculative community appears to have been caught leaning the wrong way. The net short position of nearly 32k contracts as of April 3 was the largest since last July. The gross short position of 61.4k contracts is the largest since then as well and has more than doubled since late February. The gross short position has fallen from nearly 80k contracts in late March to 29.6k contracts as of a week ago.

The Bank of Canada meets next week. The OIS suggests there is about a one-in-five chance of a hike. The odds increase slightly for the May meeting, but the July meeting is favored for the next hike. The prospects for a NAFTA agreement may

This article was written by

Marc Chandler profile picture
Marc Chandler has been covering the global capital markets in one fashion or another for 25 years, working at economic consulting firms and global investment banks. A prolific writer and speaker he appears regularly on CNBC and has spoken for the Foreign Policy Association. In addition to being quoted in the financial press daily, Chandler has been published in the Financial Times, Foreign Affairs, and the Washington Post. In 2009 Chandler was named a Business Visionary by Forbes. Marc's commentary can be found at his blog (www.marctomarket.com) and twitter www.twitter.com/marcmakingsense

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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