12-09-2018: March Canadian Dollar: Loss of Economic Momentum

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Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calendar Spread

Level Table
Other Factors
Recommendation

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Introduction

The story on the Canadian Dollar is that it is about oil and interest rates, and to a lesser extent economic data. A strong jobs report helped the Canadian Dollar in the short-run but soft oil prices have sufficiently dented the Canadian economy to the extent that the Bank of Canada will be unlikely to raise interest rates at least for the first three months of next year. Interest rates in turn are what attract investors to the Canadian Dollar perhaps more than any other factor.

Something else is going on here as well, as we may all be sliding into a recession. President Trump exclaimed that when that happens he will no longer be around. There is a possibilitiy that will not be so, and even the next two years could see a recession start. A weak equities market senses this. The President touts claims that the trade balance has leveled out with countries like Canada and China. In other words, we are selling more to these countries in proportion to what they sell us than before. It is important to note that this "leveling out" does not involve more trade but rather less trade. What is missing from that analysis is that a substantial portion of the "trade balance" we are selling other nations is debt, not goods and services. By insanely raising our debt, the government prints money to make it easier to pay off that debt, devaluing the U.S. Dollar and perhaps other foreign currencies dependent upon it along with it. With less buying power there would be less consumption and less economic growth. Canada may be seeing this just a bit earlier than other countries, but the U.S. may also have a turn to see recession sooner-than-expected as with insane trade policies we are slowly sliding into it.


Intermarket Analysis

We fed the Canadian Dollar, Australian Dollar and British Pound into a neural network to get the following result:




Parabolic Chart

March Canadian Dollar:

Parabolic Chart


Nirvana Chart

March Canadian Dollar:

Initial Chart


News Analysis

Critical events abroad are holding back the Canadian Dollar. Employment data in Canada has been volatile. Friction at an OPEC meeting could lead to an energy sector selloff, where Canada has a commodities-based economy where energy is an important contributor. Analysts see an output cut from major oil producers and positive Canadiank job numbers as necessary toi regain any sort of upside momentum.

The Canadian Dollar is at nearly an 18-month low against the U.S> Dollar. Oil and stock prices declined causing investors to slash bets that the Bank of Canada would raise interest rates any time soon. Governor Stephen Poloz said that the Canadian central bank would need to assess the impact of lower oil prices and a new threat to U.S.-China trade relations. The governor's latest announcement caused assessment of an interest rate hike to be slashed from 60% to 10%. The current benchmark rate is 1.75%. This is where the bank last raised the rate in October. Stock market weakness for Canadian stocks was also evident.

Canada exports many commodities including oil, so its economy could be hurt if the global flow of trade or capital flows. Major oil producers ended a meeting without announcing a decision to cut crude output. Canada's trade deficit widened in October to $1.17 billiion. Separate data showed purchasing activity in Canada expanded at a slower pace in November.

The Canadian Dollar will rally over the coming year if oil prices recover and the Bank of Canada continues lifting interest rates, accordingn to a poll of strategists who have become less bullish on the Canadian Dollar's prospects. Canadian government bond prices were higher with lower yields.

In the most recent employment data for November, the Canadian economy created jobs at a rapid clip in November, supporting and pushing the "Loonie" higher. Canada created 94,000 new jobs in November which was considered a "show stopper." The unemployment rate reached a low of 5.6% when economists had predicted it would remain at 5.8%. Wage growth slipped in November to 1.5% when economists predicted it would fall from 1.9% to 1.8%. Quebec and Alberta led the job gains. That created more concerns than usual surrounding the sustainability of the November jobs reading. Improving job creation is thought to put upward pressure on wages, which leads to increased demand in an economy and puts upward pressure on inflatioin, with implications for interest rates and financial markets. Seeing a rise in Alberta employment suggests activity in the oil industry that may not be supported by oil prices and trade.

Language "oil price shock" is being used by a chief strategist at Canada's Scotiabank. Benchmark Brent crude oil declined by 10% in price in October alone, and Western Canadian select plumbed fresh record lows. THe Alberta government required production cuts from local producers. These cuts will remain in effect for a year. There will remain a negative hit to the economy from Alberta's first quarter production cuts. As of this writing, oil prices strengthened a little, providing a short-term boost to the Canadian Dollar.

It seems clear that Bank of Canada prospects for rate hikes, from which it backed away from October views, is the main factor influencing the Canadian Dollar exchange rate. GDP growth in Canada stalled in September. The signing of a USMCA agreement with replaced the NAFTA trade agreement could mean more room for "noninflationary growth" over coming quarters than previous thought, which would not bode well for interest rate increase prospects. However, some see the signing as removing uncertainty and having a positive impact.

Some think the Bank of Canada interest rates will reach 3.5% by some time in 2020. They presumablyi could reach 2.25% in 2019. March looks now like the most likely month for any further interest rate hikes rather than earlier-predicted January.

Regarding the exchange rate, as the commodities contract is denominated in U.S. Dollars, the U.S. Dollar has been trading in more or less of a tigher range as the Canadian Dollar has gotten slammed.

Reduced business investment during the last three months of this year went on the back of trade tensions to hammer the Canadian Dollar. The main factors for the Canadian Dollar's recent performance are loss of economic momentum and lower oil prices.


Point & Figure Chart

 84.0|                                                                  R 12/ 7
     | IMM - Mar-19 Canadian Dollar, $100000, c/$  Cm.=0.03  Lim.= 0.8
     |
     |                                            X
     |                                            XO
 82.5|____________________________________________XO___________________________
     |                                            XO
     |                                            XO      X
     |                                            XO      XO
     |                                            XO    X XO
 81.0|__________X_____________________________X___XO____XOXO___________________
     |          XO                            XOX XO    XOXO
     |          XO                            XOXOXO    XOXOX
     |          XO                            XOXOXO    XO OXO
     |          XO                            XOXO O    X  OXOX
 79.5|__________XO____X_X_____________________XOX__O__X_X__O_OXO_______________
     |        X XO    XOXO                    XO   OX XOX    OXO
     |        XOXOX   XOXO      X             X    OXOXOX    OXO
     |      X XOXOXO  XOXOX     XOX           X    OXOXOX    OXOX
     |      XOXO OXO  XOXOXOX   XOXO          X    O O O     OXOXO
 78.0|____X_XOX__O_OX_XOXOXOXO__XOXO__________X______________OXOXO____X________
     |    XOXOX    OXOXO OXOXOX XOXO      X   X              OXO O    XO
     |    XOXOX    OXOX  O O OXOXOXOX   X XO  X              OX  O  X XO
     |    XOXOX    O O       OXOXO OXOX XOXO  X              OX  O  XOXO
     |    XOXO               OXO   OXOXOXOXO  X              O   O  XOXO
 76.5|____XO_________________O_____OXOXOXOXO__X__________________OX_XOXO_______
     |    X                        O OXOXOXOX X                  OXOXOXO
     |    X                          OXOXO OXOX                  OXOXO O
     |    X                          OXOX  OXOX                  OXO   O
     |    X                          OXOX  OXOX                  O     O
 75.0|____X__________________________OXOX__O_OX________________________O_______
     |    X                          O O     OX                        O
     |    X                                  OX
     |    X                                  OX
     |X X X                                  OX
 73.5|_OXOX__________________________________O_________________________________
     | OXOX
     | OXOX
     | OXO
     | OX
 72.0|_OX______________________________________________________________________
     | OX
     | OX
     | OX
     | OX
 70.5|_OX______________________________________________________________________
     | OX
     | OX
     | OX
     | O
 69.0|_________________________________________________________________________
     |
     |
     |
     |
 67.5|----|----|----|----|----|----|----|----|----|----|----|----|----|----|---
      11                            1111            11111              1
      221223344445555666667777788899001211123458889911222112223455677990
      112012300110112001120012201200123101201110130103002110122212212011
      471563018893286235741640950669910548476993811890476065411005995420
Our computer tells us a non-conventional reactive approach works best for Canadian Dollar on p&f charts. Therefore the above chart is taken as giving a buy signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical low and a weak seasonal up period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "Pattern". It is giving a buy signal.

Internal Printout 1 Internal Printout 2

Results of "Pattern" for Canadian Dollar (blue lines = successful trades, red, unsuccessful): (Always in the market.)

Results


Third System Confirmation

Our third system is working on a long term buy signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $1,000. Initial margin on a single contract is $1.265. Use of options is not advised.


Historic Range

Scale trade buyers are entering the market for the long term in this price range.

Historical Chart


Commitment of Traders

Commitment 1

Large speculators with the best track record are getting increasingly-short.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a change in major trend to up is imminent near a volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Canadian Dollar June 0.7650 Call and Sell (1) Canadian Dollar June 0. 7550 Call @ 0.0045 to the sell side or better.


o 1 o 2 o 5


o 3


o 4


Calendar Spread

What the Mar. - Sep. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down in the long run. The best time to enter or leave the above spread is when it is at -0.14 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -0.32 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be midway with no particular trend detected in either direction.





Level Table:

Level Table

The path of least resistance is down.
 83.0|                                                                  T 12/ 7
 IMM - Mar-19 Canadian Dollar, $100000, c/$  Cm.=0.03  Lim.= 0.8
     |
     |
     |
 82.0|DDD______________________________________________________________________
     |DDDDD
     |DDDDDDDD
     |BDDDDDD
     |BBCDDDD
 81.0|BBCCCCCDDD_______________________________________________________________
     |BBCCCCCCCCD
     |BCCCCCCCDEE
     |BBBBCCCDDEEEE
     |BBBBCCCCDDEEEE
 80.0|BBCCDEEEEEEEEJJJJ________________________________________________________
     |BEEEEEEJJJJJJJ
     |BBEEEEFFJJJJJJ
     |BEEFFJJJK
     |ABBEEFFFFJK
 79.0|AAABFFFJK________________________________________________________________
     |AAABFFHJJKL
     |AAAAFHHHJJKLLLLM
     |AAAAAAAFFFGGHHHJKKKLLLLLMMM
     |AAAAAAFFGGHHHHHHKKKKKKKKKLLLLLLMMMMMVV
 78.0|AFFFFGGGHHHHHHHHKKKKKKKLLLLLMMMMMMNVVV___________________________________
     |FFFGGGGHHHHHHHKKLLLLMMMMMMNVVV
     |FFFGGGGGHHLLMMMNNNNTTTUUUVV
     |FFFGGLLMMMMNNNNNNNNTTTUUUVVVWW
     |GGMMMNNNNNNNRRRSTTUUVVVVWWWW
 77.0|GGGGMMNNNNNNQRRRRRRRRSSSTUUUUUVVVVWWWWX__________________________________
     |GGGNNQQQQRRRRRSSSSSSTUUUUVVWWWWWXX
     |GNPPPQQQQRRRSSSSSSTTTUVWWWWXXX
     |NPPPPPPQQQQRRRSSSTTWWWXXXXXXXYY
     |NOPPPPPPPQQQQQRRSSSTTTTWXXXXXXYY
 76.0|NOOPPPPPQQQQQTTTTTTXXXYYYYYYY____________________________________________
     |OOOPQQQQTTYYYYYZZZZ
     |OOOOQQQYYYYYYZZZZ
     |OOOOOOOQQYYYZZZZZZZZZ[
     |OOOOYZZZZZZ[   <<<
 75.0|OOZZZZ[__________________________________________________________________
     |Z[[
     |Z[[
     |[
     |
 74.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO=-0.308
       1 1                                       1 1 1 1 1           1
       2 2 1 1 2 2 3 3 4 4 5 5 6 6 7 7 7 8 8 9 9 0 0 1 1 2           2
       1 2 0 2 0 2 0 2 0 2 0 1 0 1 0 1 3 1 2 1 2 1 2 0 2 0           0
       1 2 9 4 7 2 8 2 6 0 4 8 4 8 2 7 1 4 8 2 6 0 4 7 1 6           7


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 12/07 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                 CDH9    March Canadian Dollar

                      High Price:  76.44
                   Current Price:  75.46
                       Low Price:  73.49

                            Risk: -0.026
                     Opportunity: -0.053

                    (O/R) Ratio =  2.010


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis - 1
Parabolic Chart - 1
Nirvana Chart - 1
News - 1
Point & Figure + 1
Cyclicals - 1
Seasonals + 1
Internal System 1 + 1
Internal System 2 0
Third System + 1
Historic Range + 1
Commitment of Traders - 1
Range/Volatility + 1
Level Table - 1
Other Factors - 1
Total - 311
Place 11 March Canadian Dollar on a Sell Watch with stoploss @ +1.08 above the get-in point when recent price is represented as "75.46".
____________________________________________________________________________________________________________________________________________C.T.