Waiting for CAD……
US dollar becomes a King in 2014
that rise by over 12% but each currency falls against it at various extent.
Now, US dollar is over stretched according to more indicators. I expect it need
to take a breather to resume the trend (my view is US dollar starts a bull market
and keep rising in the future 3 years). Following chart shows that EUR fall the
most among currencies and JPY and CAD follows.
Source:
Finviz
A good currency pick like stock pick to beat major Index can get a higher
return than to long Dollar Index only. My target currency to short is CAD
against Dollar.
Figure 1-3: All three indicators show
US dollar is extremely oversold. Most Hedger takes substantial short position
of dollar. 6 months rate of change hit a warning level and Public opinion is
over optimistic.
Source: J.
Lyons Fund Management and KimbleChartingSoultion
Figure 4: Now let take a look at fundamental
factor of CAD. Oil and Gas account for nearly a third of Canadian Non Housing
Investment. Recent plunge of oil and gas will bring a negative impact to fixed
investment.
Source:
Sober Look
Figure 5: In addition, Canada
Source:
Sober Look
Figure 6: Crude oil is highly
correlated to Canadian Employment historically. Oil slump will trigger a fall
in employment.
Source:
Canaccord Grnuity
Figure 7: As regards to personal
finance, a rise in personal credit is faster than rise in disposable income for
14 years in a row. However, US
Source:
Deutsche Bank
Figure 8: Canada Canada
Source:
Deutsche Bank
Figure 9: The ratio of home price
to income and that of home price to rent is above historical average by 35% and
91% respectively. A sign of a housing bubble.
Source:
Deutsche Bank
Figure 10: When 2 year Canada Canada
Source:
Bloomberg
Figure 11: USDCAD still is
undervalued in its long term history. A long term characteristic of most of currencies
is that its cycle develops in a wide range. Not like stock market that its long
term is uptrend, currency has a tendency to swing in a box extending a few
years because few countries cannot outperform other countries in economic
expansion forever due to various economic structures. Fundamentally,
performance of one currency is the mirror of the economic performance of the
country to that of other countries relatively. For example, USDCAD entered a
bear market in 90s due to a secular bear market of commodity and entered a bull
market in 00s because of a secular bull market of commodity. CAD still is below
average level in the history even though recent plunge so it is expected that
the bear market still has a long way to go.
Source:
Bloomberg
Figure 12: Although CADUSD is
now at a first stage of bear market, it is important and patient to take a
position to follow the trend. There are more pullbacks, corrections and tests
in a bear market so it is not time to get entry when CAD is oversold and over
pessimistic. The chart shows more traders and investors are extremely
pessimistic towards CAD.
Source:
SentiemntTrader
My takeaway is CAD will
continue its downtrend in the futures several years due to housing bubble,
plunge of oil and historical factor. Housing bubble bust is likely to be
triggered by a fall in commodity price that leads a weaker fixed investment.
However, it is not a good time to get entry because of over stretching I am
still patient to wait for an opportunity to short CAD. Stay turned!!
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