Loonie has wings clipped

[TrogL]

http://www.canoe.ca/EdmontonBusiness/es.es-11-25-0086.html

TORONTO -- The Canadian dollar lost almost a full U.S. cent yesterday, caught in the crossfire of a surging American currency and a dismal retail sales report that suggested a still sluggish domestic economy.

The loonie closed at 75.8 cents US, down 0.98 of a cent.

The plunge came as the U.S. dollar enjoyed its best showing in weeks against the world's major currencies, spurred by positive feelings about the recovering American economy. In contrast, the loonie was squeezed by a Statistics Canada report yesterday that showed retail sales in Canada were surprisingly weak in September.

Looks like it was more the greenback made a bit of a comeback. The Sun, however, is right-wing screed so they want the loonie to look bad so they can blame the Liberals.

[Screaming Lord Byron]

1. If the loonie goes below 67, everyone complains that it's too low

if it goes above 73, they say it's unsustainable and damaging to exports. For the Canadian Right, the loonie is never right, unless they're in charge.

[rapier]

2. notes

There is nothing to be read into one days market action.

The dollar is in an almost two year long downtrend against most currencies, including the Loonie. Maybe a dollar bottom is in. I doubt it but could be. There is no particular reason to look for such a bottom, just as there is no particular reason to look for a top in the Loonie.

Yesterday the dollar had quite a pop, after a disasterous two week slide. That is how markets work. Sharp counter trend moves, called reversals, are the norm in strongly trending markets. Why? Because the strong trend entices weak small speculators to come on board. Savy big traders know the easy quick money in such a case is to start prices moving against the trend to shake out the weak specs. In this case the weak hands were long the Loonie and when the price started moving against them they sold to avoid losses or cut losses. That selling begat more selling in a mini cascade.

None of this has anything to do with the fundamentals of the markets. In fact markets don't trade on funamentals at all. They trade on liquidity. Rising liqidity means rising prices, be it the Loonie, gold, art, collectibles or most importantly of all, stocks.

The strong uptrend in the Lookie brought money into the Loonie.

Perhaps, as I said at the start the top is in. It looks doubful already since it went back up today. Significant reversals which hint at a real trend change almost inevitably last several days. Anyway, since this is a two year old trend it will could months before we can even guess that the top is in. Picking out one day and saying this is a big deal is a fools game.

[Code_Name_D]

3. Never the less, there steems to be no shortage of fools.

Especualy with another muyth out ther that says dropping prices is a buiyng opertunity. There are sevral co-workers who were taken in. They climed on board the rocket, strapped themselves in, and are waiting for it to take off and curry them up to wealth.

[rapier]

4. notes on the dollar

So the Canandian Dollar shrugged off it's little swoon and leaped higher into the end of the week. The US Dollar index moved likewise (inversely) thus making a new monthly low below the spike bottom in Oct. 98, the time of the LTCM crisis. One must look back 7 years now to a lower price, in Jan 97.

From it's peak of a tad over 120 in jan 02 the dollar index has now fallen 33% to a hair above 90. The summers counter trend rally is now officially history.

The spike up Monday was certainly the result of foreign central bank dollar buying, particularly by Japan. Japan's central bank sold $14 bilion dollars worth of yen in November, the proceeds of which probably went mostly into US Treasury paper. Despite this kind of support they could only slow the yens rise.

(Wish I know how to post a chart. Can anyone help me)

Will the dollars slide continue. Probably, who knows. The slide has been bad but there has been no panic, so far. The dollar is todays most likely candidate to be the cause of any sudden financial problem, call it a crisis or panic. Note I am not prediticting such just that the possibility is quite obvioius, even if ignored by the financial world. I'll put a number on the chance of a dollar panic which would in turn throw the entire financial world into disarray. 10% over the next 6 months. (this is based upon nothing really but a silly blind guess. The point being that it is non trivial, even if still far from likely)

Huge amounts of money are involved in currency derivatives which require active hedging. The problem now is that sellers rule. Finding buyers is getting harder and harder to do. Mostly Asian central banks who are playing the fools with their taxpayers money. So far players have total faith, evidently, in the ability of the system to manage the risks. Is this faith misplaced? In many ways the situation of currency hedgers mirrors that of the stock holding institutions in 87 when so called 'portfolio insurance' led them to believe that dynamic hedging would protect them if the market fell. Then came the October crash, all buyers disappeared and the hedging strategy became inoperative. In fact the hedgers, in this case selling against long stock positions started the panic.

Per usual read Doug Nolands Credit bubble Bulletin. Skip 3/4 of the way down to "dollar problem watch" for the relevant discussion.
http://www.prudentbear.com/creditbubblebulletin.asp

[TrogL]

5. How to post a chart

(edited to actually have a working example)

Find the webpage containing the chart you like (eg.
http://money.cnn.com/markets/dow.html)

Right click on the chart and select properties.  Highlight its
Address:URL (make sure you get it all if it's multi-line) and
type ctrl-c.

Paste the result here.  In the Message input screen it will
look like this.  

http://money.cnn.com/images/charts/dow_today.png

See my reply for the result.

[TrogL]

6. The result

[TrogL]

7. Which top?

Perhaps, as I said at the start the top is in.

The top of the loonie or the top of the greenback?

The strong uptrend in the Lookie brought money into the Loonie.

This I just plain don't understand. "Lookie" ?

[rapier]

8. notes

Rising markets always bring in more buying. That is the hallmark of bull markets. All rising markets have this self reinforcing pattern.


I menat the top of the Canadian Dollar as that is the rising market.

Now for some charts.

The Loonie



And the dollar index




Charts courtesy of TFT
http://futures.tradingcharts.com/custom_menu.php3

Edit, I see these monthly charts do not update so they don't include this weeks action which in the case of the Loonie is down a tad and the Dollar made a new low for the move today.