"Oil prices have dropped even though gasoline is still high ... curious." I thought I explained that one. Bottleneck in refinery capacity causes shortages downstream, hence high prices for refined product, while crude piles up upstream, hence glut and price drop. Refinery capacity was already strained to the limit when we had a series of fires .... It's not like Katrina, which knocked out refineries, but also hit domestic oil production and increased reliance on imported oil. As to today's retail sales figures, I leave you with a thought from David Ricardo, who was asked how he made his fortune on the stock market. His answer: "People exaggerate the importance of news".
I believe the CAD is going straight up because that is where the money is. the usd/cad pair has the largest number of longs: according to oanda and: http://biz.yahoo.com/fxcm/070517/1179412247668.html?.v=1 I can see why so many traders are longing this pair...super oversold on short term charts but not extremely o/s on monthly charts. we have heavy reliance on short term charts which is causing far to many longs to enter usd/cad thus inciting the shorts to take her down knowing full well the longs will have to join the shorts soon. as soon as enough longs are shaken out then a rally will occur. we are now entering into a chart that is indicative of little support to counter a massive fall downward to the 104 area. the pair is now dominated by chasers and flailing longs looking to sell on any tick around the 34wma. fear of missing more profit on the downside has turned this pair into a one way trade.
Sorry, the positions of traders at Oanda are not indicative of the general market. Whenever a pair gets this extreme, you ALWAYS see that kind of thing. Especially at Oanda. CAD is about to break 1.09. Go against this trend at your own peril.
well there goes the channel support oh well next week is a new week hopefully I can get a front nine in before it rains today have a good weekend
The reason that there are more longs than shorts is that there are more fundamentalists than chartists, and they realize that USDCAD is ridiculously underpriced on fundamentals. "Where the money is" is an expression of wishful thinking, not reality. Friendoftrend may be right that the chartists will force it down some more before sanity reasserts itself - for that reason I have finally stopped out at 1.0900 and gone modestly short - but I think expecting to see 1.04 is nuts. Anyone notice, btw, that GBPCAD has dropped 300 pips in about 30 hours? All of a sudden, CAD seems to have friends all over the world. There's a CAD fad. I wonder why? Here's a theory: they were iffy on CAD because we have a minority government and instability and all that. Now they see that nobody is keen on an election any time soon, and the economy has been doing well recently on the back of the LOWER LOONIE which has encouraged M&A and boosted the manufacturing sector, causing nice economic figures. Also oil went up to $66 for a while, because of the stupid business with the British sailors - that's what triggered the slide - and that expensive oil is still being reflected in the pooled monthly price. The HIGH LOONIE will screw manufacturing exports and discourage M&A; falling oil, gas & lumber prices will screw the resource sector (only nickel is doing really well); the HIGH LOONIE also exacerbates the effect of falling resource prices, because it means that not only are we getting fewer USD for our resources, but they are worth less. Resources have been going up far too fast to be sustainable for the past 10 years now, and especially the last 3 years: that's an awfully long bull market, and it's way overdue for a correction. Amaranth and BMO are only the beginning of a series of nasty shocks for the commodities and CAD bulls, and also for the chartists out there who mistake bids, i.e. wishful thinking, for actual money. An awful lot of our prosperity over the last few years has been built on the housing boom, which is in full retreat in the US (Canadian house prices didn't go up nearly as much), and on the resources boom, which has been gracefully unwinding itself for a year now. In general, we've lived on easy money, which instead of being invested in verbs (productive activity that generates enough income to pay off the debts we've been running up) has gone into nouns (commodities and assets, which don't produce anything). The Economist has been warning about a "worldwide asset value bubble" for several years now. All that, plus a booming stock market and consumer spending fueled by credit cards, creates a classic 1929-1987-1989 scenario: watch for a hard landing on the stock market. Gordon Brown warned about this over a year ago: that's why he's hawkish on interest rates. He positively wants the UK housing market to crash (and it's even more overheated than the US market ever was). He wants to free up all that capital for productive investment, he's concerned high prices are locking out new entrants, he thinks the boomers have invested way too much in overpriced bricks and mortar and not enough in pension funds, so they'll soon start being a burden on the state. There is also a project underway among economists right now: they're figuring that having worked out how to control inflation, the next big thing is how to control excessive asset price fluctuations. In a few years, Forex, like all other assets, may become a much more sedate market than it is now. I think I'm going to make a close study of GBPCAD, which I don't understand very well but which seems to be much more volatile than USDCAD (trading range of over 3400 pips over the last year). I may pick a point soon and go long. When it rallies, it is likely to go further and faster than USDCAD.
I was up into the wee hours watching this sink and was very close to plunking down major size at 1.0940 (despite my system blinking bright red to stay the F away). I'm glad I listened to the system..
gpaulson, you make a good fundamental argument. what is your high/low target for usd/cad and when do you see it being hit? also, what are you seeing around you in Canada regarding general economic conditions? tembec is idling plants...any other timber related employers doing same?
Last summer, I made some money on a stock called Ainsworth, a West-Coast lumber producer. I bought at $24 and sold a few days later at $26. Today it can be had for $7, and I expect that after the 2007 annual report has come out it may become a penny stock. So that's how the lumber industry is going. (Ainsworth mainly produces OSB, which is used almost exclusively in house construction, so they've been hit hard by the US housing slowdown.) I plan to buy a few thousand shares early in 2008: as the US housing market recovers, so will lumber. Generally the economy has been booming, especially Alberta, and the TSX-500 is near record highs like the Dow and S&P 500. But that's to be expected, given the resources boom and the recent recovery of USDCAD, which has given manufacturers a boost. A big part of our manufacturing exports is cars, though, and the US-Canadian car companies, especially GM, are in trouble. NAFTA means foreign companies wanting to penetrate the North American market can locate in Mexico or Canada as easily as the US. Canada is obviously more expensive than Mexico, but has advantages, such as better infrastructure, less corruption and a more educated workforce. A big inducement for manufacturers to set up shop here rather than the US is free medical care: not having to buy health insurance for their employees is a big advantage, and contrary to popular perceptions, our corporate tax rates are lower (and capital gains deductions higher) than in the US. Labour costs are also a bit lower. But disadvantages are seasonal economic fluctuations due to our harsher weather (which also increases certain costs), greater distance to market, and a small, geographically-dispersed domestic market. Those are the basic reasons why our standard of living is slightly lower and our unemployment levels chronically higher than in the US. Vulnerability to FX fluctuations doesn't help, either. But on the whole, that's why Canadian companies are such popular M&A targets. Also, coming corrections aside, there's no doubt that the long-term direction of resource prices has to be up, and resources we got. Anyway, back to business. Everything that happens takes time to work its way through the system, so I'm now expecting the loonie to stay in the doldrums for a couple of months, like it did last year - with occasional excursions upwards by a couple of hundred pips, and then falling back again - but the Canadian economic news should get worse as a result, the trade deficit will continue to narrow, and I think we should break back out to 1300-1400 sometime in July. If the US goes into fullblown recession, Canadian exports will go into the tank and the loonie should drop sharply. I see us getting back to 1700-1800 by the fall and maybe hitting 1.20 by the end of the year. Recalling that at the end of the last recession it hit 1.60, it might still have lots of upside potential for 1Q08. I see the Fed easing rates later this year, to try to generate a recovery in time for the 2008 elections, but Dodge will probably follow suit, so the differential won't change. I'm not convinced that rates make all that much difference to USDCAD anyway. Whatever Bernanke does, it isn't likely to have much effect until 2Q08 - at that point we might see USDCAD max out, maybe around 1.25. After that, we're in crystal ball territory. Incidentally, here were my predictions in May 2006, when we were last down here: I thought the 13 successive rate increases had turned the ship around and USDCAD was in recovery mode (note: 13 increases, not one or two). Also I didn't think $75 oil would last. I predicted we'd get to 1300 or maybe 1400 "soon" (in fact we got to 1400 in July), that we'd reach 1500 by the end of October (missed by 6 weeks), and 1700 by the end of the year (got there on Jan 4). However, I didn't predict this slide. Fortunately, my risk management techniques have improved and I didn't lose my shirt. Basically I'm back to where I was mid-March, which is still about 15% up on the year. Better than I'd get in the bank, and tax free ($500k capital gains exemption for small businesses in Canada).
On Oanda, the reason there are so many longs is probably more geared towards the fact that they... 1. Don't use stops and therefore are trying to endure the drawdown in the hopes it will come back. 2. See the pair at extreme levels and go for a risk/reward scenario. 3. See RSI at oversold and want to buy in. I doubt very much there are any "fundamentalist" traders at Oanda. Very few, anyway.