Canadian Dollar Avoids Key Stochastic Level, RBC Says: Technical Analysis

Investors should bet the dollar will weaken versus the Canadian currency after the greenback avoided falling to a level considered unsustainable, according to RBC Dominion Securities Inc., citing technical indicators.

The currency pair’s slow stochastic oscillator hasn’t fallen below 25, indicating the U.S. dollar still has potential to decline, George Davis, chief technical analyst for fixed income and currency strategy in Toronto at the Royal Bank of Canada unit, said in a telephone interview.

“Price action yesterday eliminated the oversold nature of the dollar, so that sets the stage for a continuation of the overall downtrend,” Davis said. “A lot of the currencies that are linked in with the risk trade like Canada have resisted a lot of the potential negative headlines and been able to do quite well. The psychology in the market is biased toward risk-on right now.”

Davis recommended today in a research note that clients sell the U.S. dollar at C$1.0160 and C$1.0195, taking profit at C$1.0100 and ending the trade if it appreciates to C$1.0215.

A break in the greenback below C$1.0120 would make it possible for the Canadian currency to strengthen to C$1.0078 and then C$1.0055, Davis wrote. The U.S. dollar would have to rally to C$1.0260 to signal the downward momentum is over.

Canada’s dollar appreciated 0.2 percent to C$1.0137 to the U.S. currency at 11:11 a.m. Toronto time after earlier dropping 0.3 percent to C$1.0178. The loonie, as the currency is sometimes known, gained 0.3 percent yesterday after rising as much as 0.7 percent.

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index. A slow stochastic oscillator measures the closing price of an asset relative to its highs and lows during a particular period to help predict whether prices will rise or fall.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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