Best of the Week
Most Popular
1.North Korean Chinese Proxy vs US Military Empire Trending Towards Nuclear War! - Nadeem_Walayat
2.Researchers Find $10 Billion Hidden Treasure In A Dead Volcano - OilPrice_Com
3.Gold and Silver : The Battle for Control - Rambus_Chartology
4.Asda Sales Collapse and Profits Crash! UK Retailer Sector Crisis 2017 - Nadeem_Walayat
5.Deep State Conspiracy or Chaos - James_Quinn
6.The Stock Market Guns of August, Trade Set-Up & Removing your Rose Tinted Glasses - Plunger
7.Gold Stocks Coiled Spring - Zeal_LLC
8.Neil Howe: The Amazon-Walmart Rivalry Will Determine the Future of Retail - John_Mauldin
9.Crude Oil Price Precious Metals Link in August - Nadia_Simmons
10.Gold and Silver Precious Metals Nearing Breakout - Jordan_Roy_Byrne
Last 7 days
The Stock Market No Longer Cares About Trump - 21st Aug 17
The Coming Boom Of Productivity Will Get Our Economy Back On Track - 21st Aug 17
Buffett Sees Stock Market Crash Coming? His Cash Speaks Louder Than Words - 21st Aug 17
This Could Be The Biggest Gold Discovery In History - 21st Aug 17
Stock Market Correction in Full Swing - 21st Aug 17
Seeking Confirmations – US Stock Market - 21st Aug 17
The changing demographic of online gamblers - 21st Aug 17
Gold is a coiled spring… the breakout is here, fundamentals are in place, technicals are compelling - 20th Aug 17
A Midsummer Night's Dream: Buy Gold and Silver - 20th Aug 17
Gold Mining Stocks 2017 Fundamentals - 20th Aug 17
EIA Weekly Report and Crude Oil - 19th Aug 17
4 Insights for Adjusting Your Portfolio in a Rate-hike Environment - 19th Aug 17
Gold Direction Indicator - 19th Aug 17
Historical Inevitability and Gold and Silver Ownership - 19th Aug 17
You Are Being Lied To About “Low” Gold Demand - 19th Aug 17
This is Why Cocoa's Crash Was a Perfect Setup - 19th Aug 17
Gold, Silver Consolidate On Last Weeks Gains, Palladium Surges 36% YTD To 16 Year High - 19th Aug 17
North Korea Is Far From Being Irrational… It Has A Plan - 18th Aug 17
US Civil War - FUNCTIONAL ILLITERATES TRYING TO ERASE HISTORY - 18th Aug 17
Bitcoin Hits New All-Time High Over $4,400 As It Catches Paypal In Total Market Cap - 17th Aug 17
3 Psychological Ingredients behind Great Web Content - 17th Aug 17
The War on Cash - Rogoff, Orwell and Kafka - 17th Aug 17
The Stock Market Guns of August, Trade Set-Up & Removing your Rose Tinted Glasses - 16th Aug 17
Stocks, Bonds, Interest Rates, and Serbia, Camp Kotok 2017 - 16th Aug 17
U.S. Stock Market: Sunrise ... Sunset - 16th Aug 17
The Next Tech Crash Could Delay Your Retirement by a Decade - 15th Aug 17
Gold and Silver Precious Metals Nearing Breakout - 15th Aug 17
North Korea Showdown: Pivotal Market Turning Point - 15th Aug 17
Tech Stocks DOT COM Bubble Do-Over? - 14th Aug 17
Deep State Conspiracy or Chaos - 14th Aug 17
From the Trans-Atlantic Axis and the Trans-Asian Axis - 14th Aug 17
Stock Market Intermediate Correction Underway - 14th Aug 17
The Islamic State Jihadi Pivot to Asia - 13th Aug 17
Potential Pivots Upcoming for Stocks and Gold - 13th Aug 17
North Korean Chinese Proxy vs US Military Empire Trending Towards Nuclear War! - 12th Aug 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

Canadians Switch Out of Canadian Dollars Into U.S. Dollars Now!!...

Currencies / Canadian $ Apr 03, 2016 - 06:05 PM GMT

By: Clive_Maund

Currencies

As a Brit I well understand the deep admiration the Canadians have for their powerful neighbors south of the border, even if it is not always expressed. The good news in this update is that now is the time to "put your money where your mouth is" when it comes to admiring the Yanks, by changing your Canadian dollars immediately into US dollars, the prime reason being that the Canadian looks set to drop after a big rally from mid-January, while the US dollar looks set to surprise by rallying away from the danger zone of the support around 93 on the dollar index.


Conventional wisdom has it that the dollar is now doomed because the Fed has just chickened out of raising rates again, but what the market is overlooking is that the Fed can blow hot and cold on interest rates anytime they like, and since the market hangs sycophantically on their every word, only words are required, not actions. Furthermore, the outlook for the dollar is actually determined by factors other than whether or not the Fed decides to hike rates by a microscopic quarter of a percent, factors like the Chinese economy imploding and dragging the world into depression, with the potential for mass liquidation driving another ramp in the dollar.

In any event what we are going to look at here predicates a dollar recovery and another drop in most other currencies, including and especially the Canadian dollar. We'll start by looking at the US dollar itself and then proceed to look at the Canadian dollar.

The US dollar has had a rough ride since it peaked early last December when the market started to figure out that it had been "led up the garden path" by the Fed for nearly 18 months with its lofty talk of "normalization" with a new cycle of rising rates. So that it couldn't be accused of lying it did a tiny rate rise in December, knowing that it could retract it later in pursuit of the nirvana of endless QE and NIRP - and a point to grasp here is that endless QE and NIRP won't necessarily cause the dollar index to drop - not if the rest of the world can be encouraged to do likewise, and perhaps on a grander scale. So the Fed can start talking about raising rates again if the dollar starts looking really shaky, as it has been in recent weeks. On the 1-year chart for the dollar index we see that it has arrived at a downside channel target just above strong support in an oversold condition, a situation that calls for a recovery, especially given the now bearish COTs for most other currencies.

US Dollar Index Daily Chart

There is a widespread perception now that the dollar will proceed to break down from the large potential top area shown on its 2-year chart below, because the Fed didn't raise rates at the last meeting, and is perceived to be bluffing. However, as they are skilled at manipulating market sentiment like a puppeteer, they can change their tune at any time, and the Commercials are now positioned for a dollar recovery, as we will see below, which is bad news especially for commodities and Emerging Markets, and the dollar is certainly well placed to turn up here or very soon, being at the bottom of the channel shown and above support.

US Dollar Index 2-Year Chart

Superficially it looks on longer-term charts like the dollar could break down below the key 93 level on the index and plunge, but the Commercials aren't buying this - as we will see they are positioned for a dollar bounceback and a drop in most other currencies.

The long-term Hedgers chart for the dollar, which is a form of COT chart, shows that they have scaled back their short positions dramatically and are increasingly bullish on the dollar.

US Dollar Hedgers Position
Chart courtesy of www.sentimentrader.com

Now we turn to the charts for the Canadian dollar. On its 1-year chart we can see that the strong recovery uptrend from the mid-January low has brought it back up to a zone of quite strong resistance and resulted in it being overbought, a situation that makes a reversal likely.

Canadian Dollar Daily 1-Year Chart

It is thus very interesting to observe on the Canadian dollar's latest COT chart that the Commercials, who back in January held a big long position which they then progressively unwound for a big profit, are now almost completely out of the Canadian, meaning that they are not bullish on it at all - and are instead more bullish on the US dollar.

Canadian Dollar COT

And it's not just the Canadian. We will now cast our net wider and see what we find.

The beleaguered euro has had a sizeable too since early December, not because of anything good going on in Europe, but because the market suddenly realized that they have been played for suckers by the Fed and expressed their displeasure by punishing the dollar. Thus the euro rose but it has now run into a zone of quite heavy resistance which is expected to turn it down again...

Euro Daily 1-Year Chart

Meanwhile the Swiss Franc has had a good little rally too, but has arrived at a trendline target at resistance...

Swiss Franc Daily 1-Year Chart

It's a similar story for the Swiss Franc COTs to the Canadian dollar, with the Commercials scaling back their long positions to a very low level that usually marks a top. Observe on this chart how the Commercials built up a massive long position right at the bottom early in December - these guys do know what they are doing, unlike the unfortunates on the other side of the trade.

Swiss Franc COT

All that we have just observed suggests that the dollar is either at or very close to a bottom and WILL NOT break down below the key 93 level on the index, but will bounce back to the surprise of many, resulting in most other currencies, and commodities and Emerging Markets getting clobbered - and certainly seems to explain the current huge Commercial short position in gold, which further implies that the pattern forming in gold is a Head-and-Shoulders top...

Gold Daily 6-Month Chart

Gold COT

One final point - many investors have gotten it into their heads that if stockmarkets drop, then gold and silver will automatically take off higher, as hot money flees into the Precious Metals sector as a safe haven. Why? - that didn't happen in 2008 - gold and silver were slammed, and it won't happen this time round if a widespread drop occurs as a result of a major deflationary episode. We know that the powers that be are trying to keep the ship from disappearing beneath the waves with their crazy QE misadventures and backsliding into NIRP, the last recourse of the terminally desperate, and there's something tragi-comic about it, like watching someone trying to bail out a sinking ship with a teacup - their belated and misplaced efforts may not even buy them any more time. Certainly the latest COTs for gold and silver look grim and should be a source of trepidation for bulls - they suggest that gold and silver are going to go down with the markets generally.

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2016 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife