Monday, January 23, 2012

USD/CAD - Poised For A Significant Move

Fundamentally things are starting to look a little shaky for the Canadian dollar. Recent economic numbers have come in under expectations. Just last week New Motor Vehicle Sales came in at -1.0% (vs. +2.1% exp), CPI -0.6% (vs. -0.1% exp) and Wholesale Sales were -0.4% (vs. +1.0% exp).

On January 18 the Bank of Canada's Mark Carney said that the economic situation in Europe is going to cost Canada $10 billion in lost economic output. As well, there continues to be concerns over Canadians' high debt levels and inflated housing prices. Not surprisingly the Bank of Canada seems intent on keeping interest rates where they are for the indefinite future.

After a brief break below 1.0100 last week, USD/CAD bounced back into wedge formation it has been in for the last 5-months. The fact it bounced back while US equity markets were rallying and the USD was weakening against the Euro points to the underlying weakness in the Canadian dollar (USD/CAD higher = Canadian dollar weaker).

In the weekly chart below, you can see a clear bottom bottom at .9425/50, following by a wedge consolidation pattern folllowing USD/CAD's break above 0.9900 back in August/September.

Typically these consolidation patterns resolve themselves in the same direction as the recent trend, which would be higher. If that happens we could easily see a re-test of the 1.0800 and possibly even higher.

I like using pullbacks to get long USD/CAD for an eventual break back above 1.0300. I am currently long from 1.01375 with an eventual target of 1.0800. However a clear break below the support line would quickly target .9900/1.000. If it breaks lower I'll likely reverse my view and go with the break.

Wednesday, January 11, 2012

Gold Back In Play

Gold (GLD-ETF) confirmed its move back above its 200 day moving average today setting the stage for continued gains in the coming weeks. What makes this move even more impressive is that it happened during a period of EUR/USD weakness.

In mid-December gold broke below its 200 day moving average for the first time in almost 3 years, causing traders to liquidate long positions and analysts to declare the bull market in gold over.

However, selling the break of an UPWARD sloping moving average can be a dangerous play, especially on the first attempt. A look at the longer term chart shows that the trend is clearly still up.

Being long gold via the GLD ETF is a great risk/reward play here with a stop back under the 200 day moving average on a closing basis. The 200 day ma should come in around 158.75 tomorrow. However it would take a break below the long term channel support of 148.50 to be able to truly call the bull run over.

I went long today at 159.14.

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