The Canadian Dollar is now trading around $.9185 to the U.S. Dollar. This has been a drudge of a climb from its March 20th lows at $.8845. Ironically, the same force that helped boost the market off the lows is now the same force attempting to cap its recent progress.
COT DATA
The weekly Commitment of Traders Reports published by the Commodity Futures Trading Commission breaks the futures markets’ largest buyers, sellers and accumulators down into their respective categories, which allows us to track their actions. Following the commercial traders has always been an effective first screen in the trading process based on the idea that no one knows a market like those directly affected by its movement. The last time the commercial traders were meaningful buyers in the Canadian Dollar happened to coincide directly with the March 20th lows when they were net purchasers of more than 13,000 contracts.
NET SELLERS
The same commercial trader category has now been a net seller for six out of the last seven weeks. Last Thursday, the Canadian Dollar climbed to its highest level since January 7th. The second step in our screen is to look for a market that is overbought or oversold against the commercial traders’ momentum. Friday’s reversal from the $.9290 resistance area was strong enough to create the sell signal we were looking for. The reversal also puts the swing high in place, which allows us to place a chart based protective stop at Thursday’s high of $.9240. Knowing our stop point allows us to calculate the risk for the trade, always our number one concern.
TRADE SETUP
The setup for this trade with the Canadian Dollar futures, the commercial trader net position and their momentum can be found on this chart. We’ve also annotated it with previous entry signals to explain the setup visually.
