Smart Money Is Stockpiling Loonies

From the Desk of Ian Culley @IanCulley

Commercial hedgers are taking an interest in the Canadian dollar. 

The CFTC has finally updated its records after the recent data breach.

And, as expected, we have some extreme positioning on our hands…

Check out the chart of Canadian dollar futures with the Commitment of Traders Report (COT) in the lower pane (red line for commercials, black for large speculators, and gray for small speculators):

Commercials hold their largest net-long position since early 2019. Extreme positioning such as this tends to mark key inflection points.

Why?

Because commercial hedgers represent the largest short sellers for any given market. And strong hands move markets.

Bottom line: When commercials get this bulled up on the Canadian dollar, forceful uptrends often follow as they unwind their position.

The stage is set for a rally, but it all comes down to price.

Here’s the daily chart of Canadian dollar futures:

It looks quite similar to US Treasury bonds as price churns below the summer 2022 pivot lows. That’s our line in the sand.

I like buying strength on a break above 0.7565, targeting 0.7855. But there’s nothing to do here until then.

Like US Treasuries, currency markets remain a range-bound mess. We have trade ideas for the pound, the yen, the kiwi, and the euro. Only the latter is above our risk level.

The CAD and other global currencies appear poised to rip higher. All we can do is prepare at this point, allowing price to confirm.

When it does, I imagine risk assets are also catching a helluva bid.

Stay tuned!

Thanks for reading.

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