Newsletter – May / June 2007 – Going Looney for the Loonie

Going Looney for the Loonie

Every once in a while, we get to see a classic: all the forces come together in a “textbook” example and we get to test our theories. The chart of the Canadian Dollar has given us just such a chance.

For the last 4 months, the CD$ has been “on a tear.” It has risen from about 84 cents US to about 94 cents US. And this week [May 28 to June 1], it has added over 2 cents! 12% in four months!

This spectacular surge has drawn out all the bulls. It seem that almost all of the most prestigious analysts and economists in Canada are calling to parody with the US$ this year. If the short term up trend continues at the same pace, PAR will be achieved by mid-July!

But, what about the US$: what do investors think about its prospects for the future? Well, if we read foreign investment research, we find an almost unanimous consensus that the US$ is heading lower. Most believe that the US$ is going down against the Japanese Yen and the Euro. And they offer this opinion even though the US$ is so low that during the past 15 years, it has always risen when it got this low. [We market technicians call this “support.” The US$ is “at support.”]

So, what about this “classic” event we mentioned… what is “classic” about the current price trend of the CD$?