USD/CAD: Time for a Bottom

We had first talked about the potential for a USDCAD bottom on Wednesday, when we reported a drop in open and long positions in USDCAD according to the FXCM Speculative Sentiment Index.

Now that we have fundamentals and technicals also signaling a potential bottom, the case is even stronger. Canada’s trade surplus fell to the lowest level since December 1998, as a strong currency increases imports and hurts exports. The government is also becoming increasingly worried about the strength of the loonie with Prime Minister Harper expressing concern over the rapid rise in the Canadian dollar while Quebec’s Prime Minister called for a special meeting to discuss the currency. Technically, we have unveiled an interesting 9 week trading anomaly that calls for in sharp rally in USDCAD in the very near future. Leading indicators, new motor vehicle sales and manufacturing shipments are due for release next week and we expect all of them to be bearish for the Canadian dollar. As for the Australian and New Zealand dollars, they are both sharply lower. AUDJPY dropped 500 points today. Risk aversion should continue to drive price action next week since New Zealand retail sales is the only piece of potentially market moving data from these two countries.