Hi Leith and Extreme,

Do you still see any hope in coming days for a retracement before it 111 level and importantly in view of the latest uneployment data released yesterday? It looks only one way traffic for USD across the board? Cheers

Not sure about any major retracement before 1.11... All USD pairs trade in synch now so if that continues, I hope we get to 1.1089 before any sizable retracement...

Any thoughts on the USD/CAD consolidation below Friday's highs?

My inclination is to believe that this is an opportunity for the pair to drop lower, but this bullish trend is clear as day and I don't think this is quite the time to sell USD/CAD.

I don't like fighting any dominate trends (always ends painfully for me); but there may be some hesitation in the USDCAD's advance going forward.

After the pair's incredible rally of the past couple of weeks, we are now in view of 1.08; which stands as a significant 61.8% fib retracement and the relative swing high from last August.

It's not much, but for those that are already long or looking for a potential entry point if you think we will get continuation - this is a good place for it.

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Elsewhere in the commodity block, AUDUSD is backed by just as much momentum as its Canadian cousin.

Here too though, we have a potential temporary barrier to ongoing dollar strength - the 50% fib retracement of the August 2007-July 2008 advance.

Though it is a considerable rally, I wouldn't put too much stock into. Instead, I'm waiting until price action pulls back to that big trendline at the bottom of the chart attached below (it goes back to 2001).

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Yea I wouldn't make a move on USDCAD yet. I'm going to wait for it to either bounce downward from the 61.8% fib or bounce upward from the 50% fib. It's too risky to add any new positions at this point.

At last lots of interesting things in this market, and some fascinating posts here lately.

I was majorly bearish the C$ on here since when I first joined the forum last December. We knew the C$ was severely over-valued at 1.06+ , and it's still over-valued on a PPP basis.

But I am very skeptical of the US dollar. I think the US financial crisis and the Fed are getting only a reprieve before the crisis worsens. That reprieve is brought on by a massive and overdue correction in oil and commodity prices. Falling oil has bailed out Bernanke, at least temporarily. But we knew oil and gas would plunge as the Saudis primed the pump to do what they can to help elect a hawkish McCain. Saudi production at its current level is unsustainable. More significantly, China Inc was shutdown for the summer by the Chinese government to put its best face forward on air quality for the Olympics.

Sometime this fall, Saudi production will fall substantially. China Inc will ramp up industrial production again and begin absorbing resources at unprecedented levels as the world's leading manufacturer tries to cope with the enormous pent-up demand caused by China's manufacturing moratorium on everything from simple toys to sophisticated computers. The combination of Saudi oil production cuts and the resumption of Chinese industrial production will support and strengthen commodity prices again.

Commodity markets are characterized by extremely long cyclyes and very sharp, steep corrections. This is the long overdue commodity correction, and with it we see a mirage of US dollar strength. Fundamentally though, the US economy faces enormous challenges and commodities remain in a secular bull market. This might bring your last chance ever to buy gold at $700 and oil at $80 before they soar to new highs again.

You sound like a CTA trying to get investors. Ha! Seriously, though, I see the reasoning behind your theory.

Crude as a natural resource only has a few decades of (full) supply left and the markets will continue to reflect this. However, I wouldn't say the equalibrium price even with this in consideration isn't relatively lower. A large driver in this recent reversal comes from the action of regulators cracking down on supposed speculators who have driven prices higher. If buy only commodity pools come under the spot light (not saying they should because they do have an economic use), a significant portion of selling pressure could be neutralized.

Besides commodities though, there is more importantly the consideration of growth and interest rate expectations. Growth from both economies has rebounded, but components from each are looking circumspect. Canada labor and housing are starting to fade and a drop in domestic consumption could easily swamp the relatively small trade component of growth. The US on the other hand is still plagued by its housing recession, business investment has slowed and consumer spending is a really big question mark right now.

Looking at the rate outlook the Fed is still expected to tighten 75 bp in the coming 12 months while the BoC is expected to ease 40 bp (meaning a 25 bp hike is fully expected with an addition 60% chance of 50 bp). This obviously supports USDCAD upside (to a point considering current benchmark rates and where they would end with these forecasts). However, IMO if the Fed doesn't act on these expectations sooner rather than later, the bullish inclination would quickly die out.

I think that as the US Dollar strengthens USD/CAD will become more sensitive to movements in the price of oil.

Interesting. Why do you think this? Less of an interest rate skew in the exchange rate to be concerned about?

I don't anticipate that the Fed will raise rates, given the current conditions in the mortgage market that would seem heavy-handed and oppressive for consumers and businesses that are trying to borrow.

My point is that I feel that the US dollar has been undervalued for many months and that most of the volatility in the US dollar pairs has been driven by bearish dollar speculative sentiment that has been "pushing the envelope" so to speak and testing the dollar's levels of resistance. Now that strong resistance has been discovered (for instance, at approximately 1.60 for the EUR/USD pair), the dollar is more fairly valued and will have a chance to respond to factors other than extreme speculative sentiment in the currency market. Given this perspective, it could be said that it was currency speculators and not oil speculators who were the real culprits driving the price of oil over $140 a barrel in July. It always seems that a cheap dollar is only indirectly linked to lower oil prices. I think the correlation is more direct -- a strong dollar means cheap oil, for the US as well as for other major consumers of oil such as China and India.

I think that the recemt USD/CAD rally is wave three (usually the longest wave) of an upward trend that will continue into the 1.13-1.15 range within the next three months. At this point, I think that wave four will settle around 1.0540 before we see a move towards 1.10 and beyond.

I like your reasoning. I am in full agreement.

In the currency market you have to deal with extremes in general price, but when these aren't an issue, investors and traders are less concerned with their positions being overextended or a currency being too cheap or expensive and instead follow genuine fundamentals more closely.

As for the price of oil, I am in the same boat in thinking that the dollar is inextricably linked to the US dollar. Not only does the US (the largest consumer of crude) buy and sell its oil in dollars; but most of the world does as well. Therefore, an Asian economy for example would need to exchange their local currency for dollars to buy crude. Obviously this means a weak exchange rate means it takes more dollars to buy oil (denominated in dollars). This ends up being a subsidy for those economies that have a good exchange rate against the dollar, but its still a burden for pricing.

As for USDCAD, what would you consider to be the first wave? the november reversal to January top? that would suggest we have further to go on this current advance. Looking at the long-term chart though, I'm a little concerned of the previous reversal, falling trend and a 61.8% fib all around 1.08.

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John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

Okay, Tuesday Aug 12th and today Aug 13th posted a Reversal Pattern on the Daily. Therefore, Friday's high of 1.0699 is the price that this Market must sail through in order to continue the Trend up. My MA/Pivot Cross is showing me that this Market still needs app. 4 to 5 more days of distribution in order for this last surge to balance itself out before finally deciding on a legitimate Reversal or a Continuation. Look for some tight sideways action until Monday Aug 18th posts ... unless (of course) panic sets in and these recent buyers realize that they may just want to take their profits Now ... which could easily drop this One 200+ pips in a hurry. Right? Let's see how strong these recent hands are.

I think that the ten year USD/CAD chart shows a bottom (11/02, wave ii) and that we are now in the middle of the third wave (usually most exended) of an advance past the 61.8% fibo level and into the 1.15 - 1.20 range before correcting for a downward move (wave iv). Of course, this is a long-term analysis. In the shorter term, (i.e., the next seven days) we will probably see more USA/CAD losses as predicted by the bearish SSI numbers.