parity seems only a summer away now, remember markets are driven by the flocks of greedy banks.
i see parity, before any rebound up to 1.100
i see parity, before any rebound up to 1.100
Loonie ... the infamous USD/CAD
- Thread starter usdoutlaw
- Start date
Ivanovich, eto byla shutka. Today, the US, tomorrow the world?
Wasn't it Laurier who said "The twentieth century will belong to Canada"? He may have been off by a century.
No, like all market trends, the rising loonie will self-correct eventually. It's not rooted in US-Canadian trade considerations, because the loonie has been going up against all the other majors as well. And it's not rooted in any weakness in USD, which is doing just fine elsewhere. The high loonie is a consequence of the low loonie, which caused an economic boom and M&A mania, and the low loonie will be a consequence of the high loonie, which will damp down the economy (eventually; don't hold your breath). A US stock market crash and recession (prediction: this fall) should result in a flight of capital from the US and a falling dollar in the short run. In the long run, Canadians rushing to buy cheap American assets with cheap US dollars, plus a collapse of the resource bubble, will drive the dollar up. Maybe even to $1.61, like in the good old days. Maybe in 2009 - 2010 sometime.
The pundits don't think we're headed for parity - the big banks forecast year-end at somehere between 1.04 and 1.08. But I think they are going by the strong economy = strong currency fallacy. It's true for a big exporter like Canada. For the US it's more complicated: strong economy brings in equity investments, so USD beats back EUR, GBP and JPY, but increases the trade deficit, which makes it depreciate against CAD (US FDI accelerates it). Recession reverses all that: up goes USDCAD, and up go GBPUSD and EURGBP.
Logical thing to do when US does slip into recession, the resource bubble breaks and the the equities land, hard or soft, is to reverse my GBCAD short (or maybe long EURCAD - smaller spreads) and get the best of both worlds. I'm calling for GBPCAD to bottom around 2.00 this summer, then get back to maybe 2.20-2.30 by 1Q08. If it works out for me, that's 1000 more pips on the way down and 2-3,000 on the rebound, 3-4,000 pips total. If it works, I'll have a nice summer vacation next year.
Wasn't it Laurier who said "The twentieth century will belong to Canada"? He may have been off by a century.
No, like all market trends, the rising loonie will self-correct eventually. It's not rooted in US-Canadian trade considerations, because the loonie has been going up against all the other majors as well. And it's not rooted in any weakness in USD, which is doing just fine elsewhere. The high loonie is a consequence of the low loonie, which caused an economic boom and M&A mania, and the low loonie will be a consequence of the high loonie, which will damp down the economy (eventually; don't hold your breath). A US stock market crash and recession (prediction: this fall) should result in a flight of capital from the US and a falling dollar in the short run. In the long run, Canadians rushing to buy cheap American assets with cheap US dollars, plus a collapse of the resource bubble, will drive the dollar up. Maybe even to $1.61, like in the good old days. Maybe in 2009 - 2010 sometime.
The pundits don't think we're headed for parity - the big banks forecast year-end at somehere between 1.04 and 1.08. But I think they are going by the strong economy = strong currency fallacy. It's true for a big exporter like Canada. For the US it's more complicated: strong economy brings in equity investments, so USD beats back EUR, GBP and JPY, but increases the trade deficit, which makes it depreciate against CAD (US FDI accelerates it). Recession reverses all that: up goes USDCAD, and up go GBPUSD and EURGBP.
Logical thing to do when US does slip into recession, the resource bubble breaks and the the equities land, hard or soft, is to reverse my GBCAD short (or maybe long EURCAD - smaller spreads) and get the best of both worlds. I'm calling for GBPCAD to bottom around 2.00 this summer, then get back to maybe 2.20-2.30 by 1Q08. If it works out for me, that's 1000 more pips on the way down and 2-3,000 on the rebound, 3-4,000 pips total. If it works, I'll have a nice summer vacation next year.
Question: What currency is being best managed by their financial overseers? There is all this talk about the US behaving irresponsibly and pretty much debasing their currency. The euro doesn't exactly inspire confidence. The yen has virtually non-existent interest rates. According to the doom and gloom crowd gold is eventually where it will be at. If not gold what other monetary instrument you going to look at? If a really bad scenario plays out CAD AUD CHF strike me as good as any and I think is why we've seen this long term bull going on since the days they were at 50 cents to a US dollar at the height of the US bull market. There are people saying in this thread there isn't a strong fundamental reason for CAD strength. Why not?
Disagree that gold is a monetary instrument any more. It's a commodity, pure and simple, & is inflated like all metals & oil.
Economist thinks Yen is the most underpriced currency on the market in terms of purchasing power - USDJPY & AUDJPY held up by carry trade & nothing else. Some pundits see USDJPY at 109 by year end. BoJ already has $900bln of foreign reserves, not really in a position to support the yen any more. And they did raise rates all the way to 0.5%.
I have joined the ranks of the loonie bulls for now, but I still think that long term the high loonie is a self-defeating proposition. It does bad things to the canadian economy & will eventually undo all those nice economic figures that are attracting everyone to it. I don't see much wrong with EUR - the main beneficiary of foreign reserve diversification and the eurozone economy is a net exporter plus showing good growth. GBP pretty good too - BoE hawkish on interest rates, just some uncertainty now over change of regime.
Economist thinks Yen is the most underpriced currency on the market in terms of purchasing power - USDJPY & AUDJPY held up by carry trade & nothing else. Some pundits see USDJPY at 109 by year end. BoJ already has $900bln of foreign reserves, not really in a position to support the yen any more. And they did raise rates all the way to 0.5%.
I have joined the ranks of the loonie bulls for now, but I still think that long term the high loonie is a self-defeating proposition. It does bad things to the canadian economy & will eventually undo all those nice economic figures that are attracting everyone to it. I don't see much wrong with EUR - the main beneficiary of foreign reserve diversification and the eurozone economy is a net exporter plus showing good growth. GBP pretty good too - BoE hawkish on interest rates, just some uncertainty now over change of regime.
BTW, what has changed in USDCAD fundamentals since February? National economies are big ships, they take a long time to turn around. A 9% fundamental change in our economic relations in 3 months? I don't think so.
As to pundits, I recall that last year RBC announced a revised model that backtested to perfection since 2003 and predicted we'd be at 1.21 by now. Hmmmm.
As to pundits, I recall that last year RBC announced a revised model that backtested to perfection since 2003 and predicted we'd be at 1.21 by now. Hmmmm.
The problem right there is the part that goes "backtested to perfection".
As for fundamentals, what are fundamentals really about? Are they about interest rates? Are they about PPP? Are they about earnings? I think at the bottom of it they go right back to the same thing technicals are trying to gauge: supply and demand. Because Canada has been fairly responsible relatively speaking on the monetary front supply is not overabundant. Because of countries looking to diversify out of the USD there is demand. There hasn't been an avalanche of pressure to get out of USD as of yet. Maybe that day won't ever come but if it does we probably haven't seen anything yet. If ordinary Americans start jumping ship they'll probably realize there aren't really that many palatable alternatives. That's the basic long term story so far. The commodities boom and current strong economic data are just the kicker.
That said with everyone in this thread now being bullish on the loonie maybe it is time to start being cautious.
As for fundamentals, what are fundamentals really about? Are they about interest rates? Are they about PPP? Are they about earnings? I think at the bottom of it they go right back to the same thing technicals are trying to gauge: supply and demand. Because Canada has been fairly responsible relatively speaking on the monetary front supply is not overabundant. Because of countries looking to diversify out of the USD there is demand. There hasn't been an avalanche of pressure to get out of USD as of yet. Maybe that day won't ever come but if it does we probably haven't seen anything yet. If ordinary Americans start jumping ship they'll probably realize there aren't really that many palatable alternatives. That's the basic long term story so far. The commodities boom and current strong economic data are just the kicker.
That said with everyone in this thread now being bullish on the loonie maybe it is time to start being cautious.
For sure it all comes down to supply and demand. But is that what technicals measure, or do they measure trading fads?
The whole point of fundamental analysis is to figure out what real-world forces push currencies across borders: the fact that we can't always figure it out accurately is somewhere in the territory between Heisenberg and chaos theory: some butterfly somewhere might cause a hurricane we failed to predict, but on the whole, weather forecasts are nowadays reasonably reliable. Dealing with butterflies and hurricanes is what risk management is all about.
As to technicals: my motto is that technical indicators are excellent predictors of what technical traders are going to do. So sure, in the short run when planning entries and exits I watch my RSI and SO and Bollies and little Parabolic SAR dots and so on. I notice they give lots of false positives, but it's marginally better than saying "USDCAD is tanking, sell!". On the whole, when it comes to reading charts, I haven't done badly by hand-drawing trend lines, trading channels and support/resistance lines: my other motto is that people are way better at spotting patterns than computers are.
The whole point of fundamental analysis is to figure out what real-world forces push currencies across borders: the fact that we can't always figure it out accurately is somewhere in the territory between Heisenberg and chaos theory: some butterfly somewhere might cause a hurricane we failed to predict, but on the whole, weather forecasts are nowadays reasonably reliable. Dealing with butterflies and hurricanes is what risk management is all about.
As to technicals: my motto is that technical indicators are excellent predictors of what technical traders are going to do. So sure, in the short run when planning entries and exits I watch my RSI and SO and Bollies and little Parabolic SAR dots and so on. I notice they give lots of false positives, but it's marginally better than saying "USDCAD is tanking, sell!". On the whole, when it comes to reading charts, I haven't done badly by hand-drawing trend lines, trading channels and support/resistance lines: my other motto is that people are way better at spotting patterns than computers are.
I read yesterday on bloomberg that analysts were predicting parity by 2009, but surely at this rate we are going to see parity before year end.
I mean when i started follwing usd/cad it was at 1.1850, and was trending up, just as my luck ran out and i went long hoping to make 80 pips, it dropped 220 points and so i was out 2800 pips very quickly.
I mean when i started follwing usd/cad it was at 1.1850, and was trending up, just as my luck ran out and i went long hoping to make 80 pips, it dropped 220 points and so i was out 2800 pips very quickly.
IMHO, low loonie causes high loonie and high loonie causes low loonie, in other words these trends are self-correcting. This summer we might be seeing reverse M&A, the US heading into recession, falling resource prices, and less sparkling economic figures for 2Q07, all of which may cause USD to rally strongly.
Last year I predicted 1.17 by year end. It got there on Jan 4. I had no idea what it was going to do next, so I got out and started playing with the rising Euro instead. And a good thing too. I'm not going to predict USDCAD, but I'm sure not shorting into a 30-year low. Shorting GBPCAD instead - predict it will reach or surpass last year's low of 1.98, although I plan to get out at around 2.02, to be safe. However GBP has been rallying against USD, is near support against EUR and continues to roar against CHF, so I'm starting to have doubts about my British political uncertainty theory. The premiss was strengthening loonie + weakening GBP = double your fun for the money, and
also it would take both trends to reverse before GBPCAD turns around. Anyway, I'm being cautious, taking profits during dips and seeing if I can short again 100 pips higher, then setting a stop 50 pips above that in case of a sudden turnaround. May was a bad month, but have made 20% so far in June.
Last year I predicted 1.17 by year end. It got there on Jan 4. I had no idea what it was going to do next, so I got out and started playing with the rising Euro instead. And a good thing too. I'm not going to predict USDCAD, but I'm sure not shorting into a 30-year low. Shorting GBPCAD instead - predict it will reach or surpass last year's low of 1.98, although I plan to get out at around 2.02, to be safe. However GBP has been rallying against USD, is near support against EUR and continues to roar against CHF, so I'm starting to have doubts about my British political uncertainty theory. The premiss was strengthening loonie + weakening GBP = double your fun for the money, and
also it would take both trends to reverse before GBPCAD turns around. Anyway, I'm being cautious, taking profits during dips and seeing if I can short again 100 pips higher, then setting a stop 50 pips above that in case of a sudden turnaround. May was a bad month, but have made 20% so far in June.