Ralph Shell @ 2:46 PM, Thursday March 11 2010
If the bull story about the loonie was in book form, it would be on the best seller list. But despite all the sponsorship and accolades from the pundits, this pair has been unable to challenge the seasons best for the C$ versus the USD of 1.0204 established on 10 15 09. The pair did trade at 1.0214 yesterday, good enough for the red ribbon but then retreated back above the 1.03 handle. What is interesting about yesterday's trade is that the open interest in the futures market went up almost 12,000 contracts, over 7% of the total open interest.
Experience tells us that the buyers are probably the big hedge fund type specs, already big longs and adding, but some body is also a big seller, slowing the loonies advance. Who might the seller be? Back in October, there was massive selling by unknown participants that took the market lower. Later when the December contract expired, there were big exchanges of cash versus futures to liquidate the trade. It looks like there are some big interests, perhaps banks, who stand in the way of parity.
This morning trade balance numbers were released by both countries. The Canadians had a C$.8B surplus better than the .03B expected. The US deficit was reduced to $37.3B lass than the expected $40.9B as the US oil imports were the smallest in a decade. Canadian oil production continues to bolster the C$, with total Canadian production forecast higher by the National Energy Board to 2.81 million barrels of oil per day, a modest increase from last year's 2.74MB/D. The oil sands production from bitumen is to grow to 854,369 barrels per day in 2010. Where would the price of oil be, what would be the value of the USD, the size of the US trade deficit be, if we had a government that would let us develop our domestic oil, both on and off shore, and develop our oil
sands?
In other US economic news, the Federal government announced they had a record $220.9B deficit for February much worse than $42.6B in January. In previous administrations the press would be featuring this news negatively on the front page if we had a yearly deficit of $220B, but now a monthly deficit of that amount is ignored. This is merely one more month toward the yearly anticipated US deficit of 1.6T.
We have like everyone else, have favored a long C$ versus the USD but rewards for this trade are illusive. Instead of trying to overcome the defenders of the USD as we approach parity, we are going to by the Cad and sell the yen on a retreat to the middle of the range. This pair does have some nice trending moves. At the moment there is some resistance in the 88 area. Should we get a pullback to the 87 handle let's try the long side with an appropriate money management stop, and an eventual target of 91.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.