The first problem in USD/CAD at 1.2655 and market leader EUR/USD at 1.2304 is a paltry 351 pip separation exists between both prices. The variation is more comfortable at about 500 pips yet the pronounced USD VS EUR struggle is seen specifically in USD/CAD as USD/CAD’s price is far to low because the signal is far to high.
What separates USD/CAD to its counterparts in USD/CHF and USD/JPY is the variation in USD/CHF and USD/JPY is miles to high. USD/CAD is as much a market leader and insight to USD as it is to EUR and the pre emminent pair to view the various relationships.
Viewed as an inter relationship from EUR/USD, USD/CHF and USD/JPY is the signal / variation are the same and informs how much each pair trades inside each other’s orbit. Yet it also informs current prices must separate and breakout from each other.
The commonality to USD/CAD, USD/CHF and USD/JPY is USD prices are much to low. EUR/USD by itself informs the downside is solidly contained and the EUR/USD price can’t handle a far lower price. As Europe and the United States were designed as complete opposite financial systems against two separate currency and financial prices, EUR or USD must win the argument by a greater variation.
Why USD/CAD signals are atronomically high and out of kilter is because averages in USD/CAD over an 18 year period are far to low in relation to current prices. USD/CAD not only desperately needs a price deviation but its price must travel higher to relieve the massive pressure.
The problem at current 1.2655 is the upper averages are located at 1.2908, 1.2972 and 1.3100. Above 1.3100, USD/CAD is outside its range yet at 1.3100 only slightly relieves price pressures to be considered normality. The why question is answered by USD/CAD is driven strictly by its shorter averages and provides zero assistance to allow longer dated averages to move higher and match current prices.
The positive to USD/CAD is all averages are vastly oversold despite lower averages and its because USD/CAD movements are naturally allowed wide latitudes. Second positive is USD/CAD remains above its 5 year average at 1.2150 and is forever in buy drop mode as lower averages provide constant supports over a long long period of time.
Further, a drop in USD/CAD from 1.2000’s to 1.2500’s raises the signal to inform a lower USD/CAD price cannot hold as it must travel higher. A lower USD/CAD risks a violent move higher. Only a drop at or below 1.1800’s relieves current price dilemmas while 1.2900’s begins normalization.
As the aptly named Loonie is at war against itself due to its top at 1.3100, USD/CAD contends with EUR/USD at its top and 6 break points at 1.2800’s as well as the 5 year average at 1.1971.
EUR/USD below 1.1971 opens the flood gates to 1.1776 then 1.1331 and 1.1264. Overall, EUR/USD must break 1.2166 to travel lower yet supports are built into the averages to protect 1.1971 at 1.2080, 1.2039 and 1.2030. EUR/USD at 1.2166 is protected by 1.2177 and 1.2142. Overall EUR/USD range is roughly 700 pips from 1.2100 to 1.2800.
USD/CAD must break 1.2585 to travel lower then targets become 1.2445, 1.2354, 1.2236. The 5 year average at 1.2150 is protected by 1.2090 and 1.2023. Overall USD/CAD range is located at 600 pips from 1.3100 to 1.2585. The EUR/USD story remains the same as USD/CAD shorter averages are strict price drivers and longer dated averages provide zero assistance.
On the interest rate front, CAD’s CORRA trades at 1.21 in relation to 1.25 or a 0.04 distance while Fed Funds at its normal close at 1.42 and 1.50 headline provides a 0.08 distance. The USD side performs all the work for CAD. Why view EUR is because Eonia to USD provides a healthy 0.58 distance and allows CAD not only to become EUR/USD’s complete correlation opposite but allows USD/CAD its wide movements as supreme USD pair to USD/JPY and USD/CHF.
The noted point in the USD/CAD and EUR/USD relationship is similarities in prices at 1.2655 and 1.2304. The only other pair USD/CAD and EUR/USD contend against is GBP/CHF. At 1.2655, USD/CAD maintains footholds in USD, Europe and the UK.
As averages are offered below, stated again is USD/CAD is a terrific currency pair in design, construction, movements, volatility and as an interest rate. Canada and Canadian markets are pure market systems and its why CAD as USD/CAD was constructed ever so carefully and brilliantly.
80 day = 1.2619
Special Average = 1.2585
334 Day = 1.2972
592 Day = 1.3100
847 Day = 1.2908
Close = 1.2655
1102 Day = 1.2445
1279 day = 5Y = 1.2150
1357 day = 1.2023
1613 day = 1.1710
1872 day = 1.1455
2129 day = 1.1324
2384 day = 1362
2562 = 10Y = 1.1297
2640 day = 1.1257
2894 day = 1.1233
3150 day = 1.1245
3409 day = 1.1316
3590 day = 14Y = 1.1412
3665 day = 1.1447
3921 day = 1.1639
4175 day = 1.1888
4429 day = 1.2090
4686 day = 1.2236
4904 day = 1.2354
Brian Twomey