Tuesday, March 27, 2007

Forex: Canadian Dollar

The Canadian Dollar was up a little today. I'm still bullish on this currency and I think we've seen a significant low made in January which I've been forecasting since December.

In the above chart we have the C-Dollar and the ETF for Crude Oil (USO). Notice the positive correlation between the two markets. They both tend to rise and fall together with oil usually being the leader.

As you know I am bullish on Crude Oil based on cycles, seasonality and commercial trading activity. In addition to that, there is also a head and shoulders bottom which has formed. So now I have four reasons why I am bullish on oil.

If oil continues to move higher, it should be a bullish catalyst for the Canadian Dollar. This is why I am bullish on both markets.

The next chart is a chart of commercial trading activity for the Canadian Dollar. The red line is what we want to focus on. Notice the huge net long position these traders are still holding in this currency. This was what alerted me to a buying opportunity back in December, but it was the weekly cycles which helped me practically nail the bottom back in January.

Even though my analysis was right on the money, I butchered this trade by getting out and having to get back at a higher price. I chose to play it safe and exited my position during the week of the ECB meeting, but got back in a week later. For those of you who held the whole time, you have bigger matzoh balls than me. God bless.

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