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April 18, 2013

Loonie Bear

The Canadian dollar looks to be in technical trouble, and if its correlation with the price of crude oil continues to hold, cycle analysis of oil supports the bearish view. Let's begin with the CAD chart:

Canadian Dollar Technical Analysis

The triangle breakdown, measured from the breakdown point, roughly projects a price of 86 cents. Interestingly, a significant pivot sits just below that price. We all know the Canadian economy is closely tied to natural resource production, so if the general commodity market breaks down as described in the previous post, a price of 86 cents... and potentially even lower... is certainly possible.

The CAD appears to have a particular affinity to the price of oil:

Canadian Dollar Correlation with Crude Oil

As detailed in the Member Letter, oil's intermediate cycle is in decline, a development which should see a lower trending price for oil lasting anywhere from 1-3 months. The loonie may therefore be under some pressure through the second quarter of 2013.

 

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