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Canada’s Dollar in Bullish Trend Reversal: Technical Analysis

May 17 (Bloomberg) -- Canada’s dollar will probably depreciate further against its U.S. counterpart after weakening past a pivotal technical level, reversing a bullish trend, according to Royal Bank of Canada.

The loonie, as the currency is nicknamed for the image of the aquatic bird on the C$1 coin, breached the seven-month resistance trend line at C$1.0097 per U.S. dollar yesterday, George Davis, chief technical analyst RBC Capital Markets in Toronto, wrote today in a client note. Resistance is an area on a chart where sell orders, in this case for the U.S. currency, may be clustered. The loonie now may slide to C$1.0159 and then to C$1.0319, matching its weakest level this year.

“A lot of the price action of the last week or so is a byproduct of the sovereign risks that have flared up in the euro zone,” Davis said in a telephone interview. “That’s created a broader risk-off tone.”

Canada’s currency declined 0.5 percent to C$1.0168 per U.S. dollar at 12:23 p.m. in Toronto and reached $1.0178, the weakest since Jan. 17. One Canadian dollar buys 98.40 U.S. cents.

Investor appetite for higher-yielding assets has dropped this month amid speculation Europe’s sovereign-debt crisis will worsen. Greece, the center of the crisis, failed to form a government after inconclusive elections on May 6, and voters will return to the polls in June.

The Canadian dollar must strengthen beyond the 98.99-cent trendline to cause a bearish trend reversal, RBC said.

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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

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