From the Desk of Ian Culley @IanCulley
It’s inescapable. If you haven’t read it in the news, seen it on Twitter, or heard it from a co-worker, here’s the scoop…
The euro has tumbled to parity with the dollar for the first time in almost 20 years!
That’s the big news in the currency markets these days. Sure, it’s a significant development.
But what currency isn’t falling against the US dollar right now?
It’s an interesting question. And it draws our attention to the Canadian dollar.
Let’s take a look.
Here’s a chart of the USD/CAD cross:
While the US dollar steamrolls everything in sight and prints fresh decade-highs against most major currencies, it’s still dealing with last year’s highs against the Canadian dollar.
Bulls continue to chip away at overhead supply, to no avail.
Remember, the resilience of commodity-centric currencies has been the story for almost a year. But the CAD is one of few left standing today.
The Australian dollar is resolving lower form its topping formation. The New Zealand dollar is breaking to two-year lows. And our equal-weight commodity index is printing its lowest level since the spring of 2020.
If and when the dollar bulls can finally best the loonie, we like buying strength on a break above 1.3050 with an initial target of 1.46. And given the overwhelming dominance of the US dollar, it’s the higher probability outcome.
Nevertheless, we don’t want to hold a long USD/CAD position until a decisive breakout above our risk level. Period.
The news of the EUR/USD reaching parity is genuinely noteworthy. At the same time, it’s just another iteration of the action we’ve seen in most currencies in recent weeks and months.
On the other hand, a break to fresh 52-week highs in the USD/CAD would be a critical development and a new addition to a growing list of data points supporting sustained dollar strength.
Sure, 52-week highs pale compared to 20-year lows, especially regarding headlines. But if and when the Canadian finally falls, we have to imagine the dollar rally is really starting to rip!
Stay tuned.
Thanks for reading.
As always, let us know what you think.
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