this ---- pair will go to under 1.20 very soon.

just watch

Even though this is a "measured move" to the downside ... allow the Market to fulfill it's obligation to the downside before buying back into it ... in other words ... enjoy the ride $$$ down ... that you've been waiting for. If tomorrow (Friday Dec 12th) closes higher than it's Open ... then ... a Long position ... strategically placed ... may bring you a few more pips. Don't fight it ... just Go with it.

I like that, good point man. I find myself doing that kind of stuff way too often...

Definitely good advice. I do see support at 1.2125/50 where we see the 11/25 low and the 50-Day SMA. A break below here could leave 1.1500 as the next target. The optimism that the end of 2009 will bring a return to growth is gaining momentum and that may support commodity prices and in turn the "loonie".

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John Rivera is the author of Market Brief, Top FX Headlines, and Forex Trading Weekly Forecast on DailyFX.com.

I agree with the sentiment here. It's a bold assertion to try and immediately buy a pair that has broken free of a medium-term trend and has just completed a very clear topping pattern (triple top at 1.30).

While this is still a dominant bull trend, there is substantial room for a pull back before we consider this pair testing the bullish convictions of the general market.

I consider 1.21, 1.15 and 1.08 milestones for any ongoing bearish developments.

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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

Tough call if you went with it! lol.

First of all, shame on my for closing my 1.2989 short! I booked 400+ on that one when it stalled and now look what happens. Not to worry, shorted 1.2450 this morning before an exam and am now floating on about 270 pips.

1.2125 is next...look out belowwwwww

Excuse the simplicity of my posting, I am a newby studying prior to entry into the FOREX trading market.

It seems to me that much of this site is focused on a kind of technician approach to exchange rates, and little focus on the underlying drivers of relative currency value. I would like to understand the reason for this better, as to be honest I am skeptical about a Deus Ex Machina approach. I am familiar with all kinds of predictive analysis approaches on other problems from my work background (i.e. reactor meltdown and the nuclear effluent production therefrom). These included Fourier transform, neural network, etc. and while they all have value, I tend to believe that the real-world drivers utterly overwhelm them very often.

So, with this preamble, it seems amazing to me that the Canadian dollar is as low as it is. Canada seems to have a surfeit of exportable energy resources, especially relative to us here in the US. They have very low national debt, while with our ever burgeoning debt it begins to look to me like our dollar could take the route of the Argentinian Austral. While the average income of their citizens is lower than here, their net worth is much higher due to their per capital savings and lack of personal debt. Their national budget seems to be pretty much in order, especially relative to ours. Furthermore, we as a country can produce either raw materials, or products enhanced by intellectual value, but we cannot any longer seem to rely on a commodity approach. As such, it seems to me that the outlook for our GDP is rather bleak at the moment, and would be especially so if confidence in the value of our currency became endemic throughout those holding our paper. Imagine our GDP of the last few years with the artificial element of the toxic mortgages and their subsequent-to-issue trading business removed. To be brutally simplistic, it looks to me like we are living in a currency bubble relative to many currencies and perhaps especially the Canadian dollar. Clearly, there must be more to it than this, but for the life of me I can not see it, and would appreciate a lucid description of the factors that I must have omitted. Thanks to all in advance who might venture on this line of reasoning.

These are good points; but there are a few things you should take into account. First, as you say, this is an overly simplified approach to the exchange rate. There are many, many factors that go into determining the true value of a currency. Growth and growth potential is only one of them - albeit a large one. You also have to consider the market component of this valuation. How are US assets perceived from a global standpoint? The US market is far more liquid, diverse and unimpeded by regulation (while still retaining a safe structure) than its Canadian counterpart.

Also, this is a market where many forecasts are amalgamated to come to one fair value. Your or my forecast may be right over the longer term, but in the short-term markets may be looking at other factors. It is important to have these convictions; but you must be pliable enough to change them should they warrant it or should you need to trade against that longer-term outlook (otherwise you could take drawdowns on your convictions - and that is difficult to do when trading on leverage).

Finally, have you considered that your forecast for the US dollar being overbought may be drawn from an incorrect base starting point? If the dollar just started trading this past summer, it would be overvalued. However, look back 30 years, (on a trade weighted basis) it is still 30% off its highs back in 2002 and its nearly half the value of its peak back in 1985. This is similar to the government's determining inflation with a specific starting point in a base year to determine the period changes. If it begins in a particularly low (or negative) inflationary period, all the subsequent readings will be higher on average.

Just possible answers to your quandary; not necessarily saying these are it.

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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

^^^ That is a great post (some others' posts too). Is it fair to summarize it by saying that because there are so many factors and we don't know which will have the most focus, we don't know with much conviction what the direction will be in the short run.

All the DailyFX analysts seem to be short term bearish USDCAD except one. They're in the same camp as our oft-discussed Jeff Rubin, who has been having a terrible year as some have pointed out here previously. It'll be interesting to hear his updated forecast later this afternoon.

IMO, the missing detail is that the Canadian economy is not independent in the least from the U.S. economy (as well as a few others). Canada can stake nearly all of its burgeoning economic gains as due to energy, resource and manufacturing activities that primarily serve the US. The domestic market is small and thrifty, so a healthy US economy is essential.

This all taken means that Canada is in big trouble... the thrift of its constituents may be its undoing, since domestic demand will not gobble up all the generated product.

Then there's the Canadian banks....

^^^ I agree.

Also:

At the moment, we have no government and no budget. We're in the midst of the greatest political uncertainty in a century. A socialist-separatist coalition attempted to seize power last week, then the governing conservatives fled the house and got permission from the British Queen's representative to suspend Canadian parliament. Tremendous uncertainty exists, except that we can be certain that many tens of billions of dollars of wasteful government spending lurks around the corner (an amount roughtly equivalent to $1-trillion in the US considering the relative size of its economy).

All this anticipated borrowing may be helping the Cdn dollar near term.

So is $50 oil, as it appears to me that oil and the loonie have returned to positive correlation.

So one big question is, will oil break and hold above $50 for very long? Or wil it drop again from that height? I think we haven't yet seen the bottoms for oil in this cycle. The last bear cycle in oil saw $10 oil ten years ago. I'm not suggesting oil will return to $10, but I doubt that $41 oil was the bottom. Four years ago in December 2004, when oil demand and global economies were much stronger than today, oil was $39 and people were screaming about how high $39 oil was. Now we're supposed to think that $40 oil is unattainably low, even with oil demand continuing to fall off a cliff, now even in Asia. Most recently, oil demand is projected to fall to levels not seen since the 1990's (when oil was $10)

Real-world drivers cannot overwhelm what can be calculated in advance ... as Kafka said ... "leopards break into the temple and drink to the dregs what is in the sacrificial pitchers ... even this activity becomes calculated in advance ... and itself becomes a part of the ceremony". Perhaps You should continue to work with what you know ... Fourier Analysis and Neural Networks ... the bridge over to the Forex Markets could be relatively easy for you at this point. In other words ... if you're serious about taking some $$$ out of these Markets ... apply your Boolean way of thinking to forecasting these Currency Pairs on a Daily and Weekly basis. Approach it Geometrically ... from a Historical High to the Low ... plug a series of Daily High/Low/Close figures into a basic Cyclical equation (find one ... think about it) ... calculate the relative square roots ... plot some Fibonnaci retracements ... observe the vibrations and get a feel for what you've applied mathematically to other means & ends TO THIS ONE ... and have some fun figuring out a comfortable Timeframe to trade within a moving market ... and discover it working for you ... calculating the "turns". Here's a challenge ... figure out a formula that translates Price into Time. Forget about the Fundamental reasons for WHY? (just for a while) ... why this and why that .... it is what it is. If you're not taking any $$$ out of the Markets consistently ... it just becomes mental masturbation anyway ... watching how other "relative factors" are behaving ... and hoping that their behavior will affect your Market the same way it did last time ... when you can listen to what the "numbers" are telling you. So, you're intelligent ... prove it to yourself! Apply what you already "know how" to work with ... to this Forex arena.

Bank of Canada issues new warning about significant risk of debt and mortgage defaults in Canada:

CANOE Money: Sectors - Bank of Canada warns of possible debt, mortgage defaults

I did not come across this today. Thanks for posting. I would hate to see any of our banks go under, in part because I've worked at one of them for the past two summers.

Whoa, neither would I !! A number of us have more on deposit than what the CDIC insures, especially these days when cash is king. Who suggested that a Canadian bank might go under? I believed that they were well capitalized and secure. Also, didn't RBC last week report well over $1-billion of profit for its latest quarter?

However I've been increasingly worried about another bank... UBS has proven to be fraught with exposure to toxic asset derivatives for itself and its clients ... but surely UBS won't ever "go under"?!