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Yola Edwards

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The Loonie’s golden glow

Yola Edwards

 

All eyes are on the Canadian dollar with its spectacular rise to 30-year record breaking highs reaching a high of 96.63 (U.S.) cents in July. The Canadian economy posted strong 3.7 per cent first-quarter growth and the second quarter is expected to register a 3 per cent gain. The Conference Board of Canada expects the Loonie to average US95.30 cents in the second half.

Though technical analysis suggests higher highs for the Canadian dollar in 2008, some shorter-term cautionary signs are appearing. A daily chart indicates the recent pullback from the highs has put the Canadian dollar index into oversold territory, which could lead to another quick rally, possibly retesting the July highs. The piercing candlestick formation for the week ending August 3 along with the close above the 10-week MA further supports a retest of the recent high, but the fact that the dollar dipped below the 10-week MA raises a cautionary flag. Though the weekly MACD is still issuing a buy signal, the indicator is starting to roll over from an extremely overbought position. In addition it also appears that a five wave advance was completed in July thus another correction should reasonably be expected with the 20-week MA at about 92.27 cents offering first support followed by the 90 cent psychological support level. Those needing to buy foreign currency in the fall might consider doing so in the current environment. Longer-term however, it appears as though the dollar could head toward par before year-end.

TSX

Currency fluctuations and stock market gyrations usually lead to higher gold prices although that hasn't been the case this time round. However, there is speculation that the Federal Reserve could lower interest rates in the coming months which would pressure the U.S. dollar and it might lead to investors turn to gold as a safe haven.

In fact the technical chart for the December Gold Futures have traced out a bullish ascending triangle over the past year, which appears to be three-quarters complete, a point which is usually considered to be the maximum extent for the consolidation phase. Once the underlying security reaches the three-quarter point of the triangle an upside break would be expected. In addition, the gold futures moving averages have turned positive and are crossing up over one another underscoring the positive bias and the MACD is also trying to turn positive from an oversold level. All of these indicators are pointing to a sharp gold rally in the near future. Only a weekly lose below $655 (U.S.) over the next two months would negate this positive trend. A weekly close above $717 (U.S.) would suggest a rally to about US$836.40 over the next year. It's probably time to look at gold sector which has been a market laggard.

TSX

As such investors might wish to look at Goldcorp Inc. It appears that the flat fourth wave share price correction since May 2006 ended in May 2007. The requisite 3-3-5 pattern appears to be in place thus a positive trend should be underway soon. In addition, the MACD has trended positively since March 2007 and the stock rallied $5 to $29 from an oversold position. The recent pullback to the $26 may afford speculative investors an opportunity, as the stock finds support from the lower oversold Bollinger band and the uptrend line from the May lows. Others may wish to wait for the MACD to turn positive as it has yet to give a buy signal from current levels. A daily close above $29.50 would be a very strong indication of higher prices. Obviously $35.90 is the key resistance level but this time it should not pose a problem. Over the next three months the stock should challenge and slightly exceed the resistance $36 level, pause and then rally to about $47.75 over the following six months.

TSX

Yola Edwards is a contributing writer and technical analyst for Bell Globemedia Interactive, providing options and technical analysis research on a variety of North American equities.

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