It has already been about two years since Canadian Dollar set an all time high against the green buck. In early November 2007 Loonie reached 0.9050 against USD, strongest reading going back at least 50 years. CAD was among currencies making parabolic run in relation to the Dollar, moves of speed and magnitude that are not sustainable. In a typical fashion for this kind of market behavior, move came to an abrupt end. Canadian Dollar collapsed. That was farther exacerbated by financial panic of 2008, which led to the Loonie shedding over 40% of its value to US Dollar, at above 1.3050.

A lot of people connect performance of Canadian currency to the price of oil and make all kinds of analysis based on the two. While there is always some relationship between commodities and CAD, it is not as clear cut as some believe. This long term chart probably illustrates it best. Oil climbed to an all time high in summer of 2008, long after the above mentioned Loonie top took place (it is bottom here, since quote is USD-CAD).  Health of Canadian Dollar depends more on overall health of general world economy and even more on robustness on Canada’s largest trading partner, USA.

With improving conditions, as reflected by stock market performance, Canadian Dollar has seen steady improvement for most of 2009 to date. Rate moved to as low as 1.0650 recently. In fact, Bank of Canada started to publicly hint at possibility of intervention, claiming that persistent Canadian dollar strength was threat to the economic recovery. This comment came just yesterday from  Bank of Canada Deputy Governor Timothy Lane. It is at least third time in a little over a month when BoC expressed concern. They seem to be taking example from Swiss National Bank. Should more central banks do it, we might have currency wars, with everybody trying to have weakest money possible.

As it is customary for central banks, officials didn’t elaborate what level exactly do they consider as too strong. They leave to us to figure it out. Regardless, possibility of intervention is getting stronger with every comment, IF Loonie keeps getting stronger.  I think that the markets give it more weight than they would have in the past, given that one central bank already delivered the goods. Once again, this alone is not a reason enough to be short CAD, but being long could be dangerous in current environment. Stops should be used religiously, in order to not get into 200-300 pips in a hole in matter of minutes, should CoB decide to make good on its threats.

I took a small trade in CAD-JPY last night, during European session. It produced 56 pips. For right now, this is the kind of moves I look for in Yen pairs. Hope it changes soon, and I can increase my targets. It still seems that Yen is getting stronger, but the moves happen in such a way that it is difficult for me to get excited about. Every cross swings with different strength and distances to next support/resistance levels are so different, that truly each and every pair should be analysed on its own.

This here as an example of what I mean. EUR-JPY is forming support line right here, while other Yen pairs are either through it already or behave in different way. I will try to see if this is going to produce a few pips. Sell order is set at 133.85. Objective is small , only 80 pips. Conditions are are not the best for hourly charts. Probably better opportunities can be found on smaller time frames. Eventually this will change, maybe as soon as next week. For now I’m being cautious, no, restrained.

Mike K.