Sive Morten
Special Consultant to the FPA
- Messages
- 18,655
Fundamentals
In 2nd report let's update our long-term view on CAD. Canada has its own problems and driving factors - domestic economy performance and anticipation of rate change, crude oil prices and NAFTA long-term negotiations with US.
Last week CAD has shown solid performance on growing oil prices and surprise expansion of the domestic
economy in April raised expectations for a Bank of Canada interest rate hike next month.
"Good enough data, the bank should hike," said Greg Anderson, global head of foreign exchange strategy in New York at BMO Capital Markets.
As Reuters reports, chances of an interest rate hike at the central bank's July 11 announcement jumped to about 80 percent from 67 percent before the data for gross domestic product, the overnight index swaps market indicated.
Still, the loonie fell 1.8 percent for the second quarter, pressured by a trade dispute between Canada and the United States and slow-moving talks to revamp the North American Free Trade Agreement.
Speculators have raised bearish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of June 26, net short positions jumped to 32,799 contracts from 14,014 a week earlier.
Now it is a big question whether recent strength in CAD temporal or it could last for considerable period of time.
On crude oil, guys, market has completed our long-term AB=CD target but no reaction has followed yet. Common sense suggests that it should follow sooner rather than later. Now there is some room till the higher level of K-resistance area @ 82$, but recently the leader of Saudi Arabia promised President Donald Trump that he can raise oil production if needed and the country has 2 million barrels per day of spare capacity, the White House said on Saturday, rowing back on an earlier Trump tweet that appeared to suggest the Saudis had agreed to boost output by that amount.
At the same time, Saudi Arabia stands in center of Yemen conflict and also has some obligations with OPEC+ agreements. This makes its position fragile. Yemen previously already made few missile attacks on S. Arabia. If they will play in its own game - Yemen forces could be used to strike world's largest refinery oil plant there to control crude oil output. This is not published in newspapers, but this is part of the dirty undercover political game...
Technicals
Monthly
Technically CAD shows reaction on strong support area that has been hit recently. This is monthly K-area and Agreement. Last time, in May when CAD starts to show irrational price action from bearish point of view, we've changed our expectations and focused on upside continuation, which has happened.
In general, this price action is not very strong, doesn't show signs of thrust and mostly reminds retracement, which means that CAD could turn back to downside action inside consolidation in short-term perspective. Monthly trend stands bullish right now.
In longer-term view, this consolidation reminds flag pattern, which as a rule is continuation pattern. As it was formed after upside action, chances on upside breakout of the flag looks more probable.
That's being said, monthly chart isn't really important for coming week, because price stands inside consolidation and it is needed to take a look at smaller scale action.
Weekly
Once our 1.33+ target has been completed, as our May analysis has suggested action above 1.31 tops because of bullish grabbers and butterfly "Sell", now market has formed multiple bearish signs. First is our butterfly is completed and last week has become reversal one, as price has reached new weekly top but closed below the low of previous week.
Second is, and more important - whole construction, including our butterfly "Sell" on the top, takes the shape of large 3-Drive "Sell" pattern, which keeps its ratios very good. Take a look that "2" Drive accurately stands at 1.27 of the 1st, while 3rd on crossing of 1.618 of the "1" and 1.27 of the "2". This combination is perfect for 3-Drive pattern.
Minimum target of this pattern is bottom between "2" and "3" drives - i.e. 1.2526 area. It doesn't look absolutely impossible, as oil price could rise a bit more, to 82$ and BoC could increase rate again...
Daily
Despite that situation looks strongly bearish on weekly chart and we should get downside continuation within few weeks, on daily market stands oversold and it means that upside bounce in the beginning of the week could happen.
In fact, we have DiNapoli bullish "Stretch" pattern as price stands at combination of Fib support and daily Oversold. Also price will open right at July MPP.
It means that current level is not very attractive for taking short position and we need to get some upside bounce to step in:
Intraday
Here we do not have background for long entry - no bullish patterns have been formed, so intraday traders will have to wait a bit. The only thing that we have is completion of Double Top target. Upside retracement should be deep, because market stand in upside action within few months. So, WPP definitely should be reached but I will not be surprised if CAD will reach 1.3250-1.3280 area.
For short entry we should look for "222" Sell pattern as it is most common one in such situations.
Conclusion:
Within few weeks CAD could get relief on a background of positive fundamental data and crude oil prices. Longer-term perspective still remains bearish for now.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
In 2nd report let's update our long-term view on CAD. Canada has its own problems and driving factors - domestic economy performance and anticipation of rate change, crude oil prices and NAFTA long-term negotiations with US.
Last week CAD has shown solid performance on growing oil prices and surprise expansion of the domestic
economy in April raised expectations for a Bank of Canada interest rate hike next month.
"Good enough data, the bank should hike," said Greg Anderson, global head of foreign exchange strategy in New York at BMO Capital Markets.
As Reuters reports, chances of an interest rate hike at the central bank's July 11 announcement jumped to about 80 percent from 67 percent before the data for gross domestic product, the overnight index swaps market indicated.
Still, the loonie fell 1.8 percent for the second quarter, pressured by a trade dispute between Canada and the United States and slow-moving talks to revamp the North American Free Trade Agreement.
Speculators have raised bearish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of June 26, net short positions jumped to 32,799 contracts from 14,014 a week earlier.
Now it is a big question whether recent strength in CAD temporal or it could last for considerable period of time.
On crude oil, guys, market has completed our long-term AB=CD target but no reaction has followed yet. Common sense suggests that it should follow sooner rather than later. Now there is some room till the higher level of K-resistance area @ 82$, but recently the leader of Saudi Arabia promised President Donald Trump that he can raise oil production if needed and the country has 2 million barrels per day of spare capacity, the White House said on Saturday, rowing back on an earlier Trump tweet that appeared to suggest the Saudis had agreed to boost output by that amount.
At the same time, Saudi Arabia stands in center of Yemen conflict and also has some obligations with OPEC+ agreements. This makes its position fragile. Yemen previously already made few missile attacks on S. Arabia. If they will play in its own game - Yemen forces could be used to strike world's largest refinery oil plant there to control crude oil output. This is not published in newspapers, but this is part of the dirty undercover political game...
Technicals
Monthly
Technically CAD shows reaction on strong support area that has been hit recently. This is monthly K-area and Agreement. Last time, in May when CAD starts to show irrational price action from bearish point of view, we've changed our expectations and focused on upside continuation, which has happened.
In general, this price action is not very strong, doesn't show signs of thrust and mostly reminds retracement, which means that CAD could turn back to downside action inside consolidation in short-term perspective. Monthly trend stands bullish right now.
In longer-term view, this consolidation reminds flag pattern, which as a rule is continuation pattern. As it was formed after upside action, chances on upside breakout of the flag looks more probable.
That's being said, monthly chart isn't really important for coming week, because price stands inside consolidation and it is needed to take a look at smaller scale action.
Weekly
Once our 1.33+ target has been completed, as our May analysis has suggested action above 1.31 tops because of bullish grabbers and butterfly "Sell", now market has formed multiple bearish signs. First is our butterfly is completed and last week has become reversal one, as price has reached new weekly top but closed below the low of previous week.
Second is, and more important - whole construction, including our butterfly "Sell" on the top, takes the shape of large 3-Drive "Sell" pattern, which keeps its ratios very good. Take a look that "2" Drive accurately stands at 1.27 of the 1st, while 3rd on crossing of 1.618 of the "1" and 1.27 of the "2". This combination is perfect for 3-Drive pattern.
Minimum target of this pattern is bottom between "2" and "3" drives - i.e. 1.2526 area. It doesn't look absolutely impossible, as oil price could rise a bit more, to 82$ and BoC could increase rate again...
Daily
Despite that situation looks strongly bearish on weekly chart and we should get downside continuation within few weeks, on daily market stands oversold and it means that upside bounce in the beginning of the week could happen.
In fact, we have DiNapoli bullish "Stretch" pattern as price stands at combination of Fib support and daily Oversold. Also price will open right at July MPP.
It means that current level is not very attractive for taking short position and we need to get some upside bounce to step in:
Intraday
Here we do not have background for long entry - no bullish patterns have been formed, so intraday traders will have to wait a bit. The only thing that we have is completion of Double Top target. Upside retracement should be deep, because market stand in upside action within few months. So, WPP definitely should be reached but I will not be surprised if CAD will reach 1.3250-1.3280 area.
For short entry we should look for "222" Sell pattern as it is most common one in such situations.
Conclusion:
Within few weeks CAD could get relief on a background of positive fundamental data and crude oil prices. Longer-term perspective still remains bearish for now.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
