Advertisement

Currency Corner: this trend looks very promising for the Canadian dollar

The "loonie" has been on something of a roll against the euro since 2018. Dominic Frisby checks the charts to see where the Canadian dollar is heading next.

190823-loonie-634
The loonie has been on a roll since April 2018

In today's Currency Corner, I thought I'd pick a forex combination at random and see where it takes us.

So, for no particular reason, let's go with the Canadian dollar aka, the loonie against the euro.

(The reason the Canadian dollar is known as the "loonie", by the way, has nothing to do with the sanity of Canada's inhabitants. It's because of the bird, the loon, which is pictured on one side of the coin.)

Advertisement - Article continues below

So let's start with a long-term chart. A ten-year chart, and straight away I'm interested.

For clarity's sake, in the chart below we are looking at how many euros there are to the Canadian dollar. So when the chart is falling, that means there are fewer euros to the Canadian dollar.

In other words, the euro is strengthening. When the price rises, that means the loonie is strengthening.

190823-Corner-1-634

The Canadian dollar enjoyed a tremendous bull market all through the noughties. It accompanied the boom in commodities, whether metal, fossil fuel or grain, to which the Canadian economy is highly leveraged.

Advertisement
Advertisement - Article continues below

Canada weathered the financial crisis much better than most. The peak in commodities came in 2011, but against the euro the peak came a year later in 2012. There were 82.5 euro cents to a Canadian dollar.

Since then you can see the dollar has been in a steady decline, each high lower than the last, each low lower too. (I've illustrated that decline with a blue trend line in the chart above.)

Advertisement - Article continues below

The final low came in April 2018 at €0.62c to C$1. Notably, this was something of a "double bottom", corresponding with lows made in 2016 and 2009. There is considerable long-term support there.

Since April 2018, the loonie has been in something of an uptrend. What peaked my interest about that long-term chart is that there was something of a break out earlier this year, with the loonie popping above that blue downtrend.

Today the price is about €0.68c to C$1. So, we are €0.06 off the lows.

But we have something of an uptrend.

The Canadian dollar is looking like a good bet against the euro

As well as the weekly price (in black), I've plotted the 21- and 9-week exponential moving average (EMA), which shows the average price over the past 21 (blue line) and 9 (red line) weeks, with extra weight given to more recent weeks.

190823-Corner-2-634

I use this system to identify trends. You can read more about how it works it here.

Advertisement - Article continues below

You can see that the December 2018 low at €0.64c was higher than the April 2018 low at €0.62c. The lows in spring and summer have been higher still at around €0.66c.

Each high of 2018 was higher than the last, which is good, but that momentum was lost in 2019 until we got another higher high in July of this year.

The EMAs are both sloping up and correctly aligned. The price itself has wobbled a bit these past few weeks, but it has held and is now back above the EMAs.

In other words it is on a "buy" signal. And the trend is up.

The sell signal should come when the EMAs cross down, as outlined here as that is where risk should be limited.

Let's see how this one pans out. But the bottom line is this: the Canadian dollar is in an uptrend against the euro.

Let the trend be your friend and enjoy the ride.

Advertisement
Advertisement

Recommended

Trading: catch this coach company
Trading

Trading: catch this coach company

Bus and coach operator National Express has expanded into promising markets abroad – and it looks cheap
28 Jan 2020
The currencies to bet on this year
Currencies

The currencies to bet on this year

The US dollar could be set to weaken this year, while the euro, Canadian dollar and the Swiss franc could be good bets for optimistic traders.
17 Jan 2020
Wayfair will lose its way – short it now
Trading

Wayfair will lose its way – short it now

The share price of Wayfair – the online homeware retailer – has bounced for no good reason. Short it, says Matthew Partridge.
11 Aug 2020
The pound has been trending higher against the dollar – will it last?
Sponsored

The pound has been trending higher against the dollar – will it last?

Sterling has been rising against the dollar. Dominic Frisby sets his trend lines in the charts to see where the pound is heading next.
10 Aug 2020

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020
UK house prices hit a new record high – can it last?
House prices

UK house prices hit a new record high – can it last?

Despite the pandemic, UK house prices have hit a new high. John Stepek looks at what’s driving the surge in prices, and what it means for house prices…
7 Aug 2020