12 June 2009 USD/CAD on Verge of Bullish Trend Reversal Global FX Strategy George Davis, CMT Chief Technical Analyst RBC Dominion Securities Inc. +1 416 842 6633 george.davis@rbccm.com Daily Close Above 1.1116 Would Signal More Protracted Retracement Phase FX Bottom Line: A daily close above 1.1116 would generate a bullish trend reversal for USD/CAD and signal that a more protracted retracement is underway, targeting 1.1313 and 1.1477. Bearish set-ups for the CAD on the crosses are also contributing to this shift in CAD sentiment. We have been highlighting the risks of a price correction developing in USD/CAD for the past two weeks after an oversold divergence formed on the daily studies. We note that a daily close above a descending channel top at 1.1116 would confirm this technical thesis via a bullish medium-term trend reversal. This would signal that a shift in sentiment is underway and set the stage for a greater retracement toward 1.1313, followed by 1.1477. We note that 38.2% Fibonacci retracement of the March-June decline is at 1.1655, with 50% retracement at 1.1923 and 61.8% retracement at 1.2192. Support is located at 1.0941 and 1.0818 with a close below 1.0818 now required in order to generate a new phase of weakness in USD/CAD. The shift in CAD sentiment is being witnessed not just against the USD, but also against the EUR, GBP, JPY, AUD, NZD and MXN (see pages 2-7 for cross charts). Bearish trend reversals for the CAD on the crosses would add to upward price momentum in USD/CAD and provide trading and hedging opportunities. Daily USD/CAD Candle Chart: Bullish Channel Breakout Above 1.1116 For required conflicts disclosures, please see last page. See RBC s research at www.rbccm.com.
12 June 2009 Global FX Strategy: USD/CAD on Verge of Bullish Trend Reversal Bullish Set-Up Above 1.5640 for EUR/CAD Like USD/CAD, EUR/CAD is poised to generate a bullish channel breakout. We note that a daily close above the descending channel top at 1.5640 would produce a bullish trend reversal for the cross. This development would highlight resistance levels at 1.5850 and 1.6006. Support is now located at 1.5375 and 1.5286. A daily close above the descending channel top at 1.5640 would also add to upward momentum in USD/CAD. Daily EUR/CAD Candle Chart: Testing Channel Top at 1.5640 2
Global FX Strategy: USD/CAD on Verge of Bullish Trend Reversal 12 June 2009 GBP/CAD Pierces Resistance at 1.8396 GBP/CAD is challenging a double top at 1.8396 after registering a bullish trend reversal above 1.8165 yesterday. A daily close 1.8396 would project additional gains to the January 16 high at 1.8596, followed by 1.8870. Support is now located at 1.8165 and 1.8046. Daily GBP/CAD Candle Chart: Testing a Key Double Top 3
12 June 2009 Global FX Strategy: USD/CAD on Verge of Bullish Trend Reversal CAD/JPY Resolving a Rising Wedge Pattern to the Downside CAD/JPY is poised to resolve a rising wedge pattern to the downside with a daily close below 88.81. The daily studies have traced out a bearish divergence from overbought levels. A close below 88.81 would favour additional weakness toward secondary support levels at 85.92 and 83.75. Resistance is now located at 88.81 and 90.32. Daily CAD/JPY Candle Chart: Rising Wedge Pattern in Place 4
Global FX Strategy: USD/CAD on Verge of Bullish Trend Reversal 12 June 2009 Bullish Triangle Breakout for AUD/CAD To add to the CAD s misery, we note that AUD/CAD has just resolved an ascending triangle pattern to the topside. The bullish pattern resolution above 0.8930 projects additional gains toward the trendline at 0.9128, followed by 0.9288. Note that the triangle pattern has a measured move objective of 0.9304. Support is now located at 0.8930 and 0.8795. Daily AUD/CAD Candle Chart: Bullish Triangle Breakout 5
12 June 2009 Global FX Strategy: USD/CAD on Verge of Bullish Trend Reversal Bullish Triangle Breakout for NZD/CAD as Well Like AUD/CAD, NZD/CAD has also generated the bullish resolution of a triangle pattern this time a symmetrical triangle. The bullish pattern resolution above 0.7095 projects additional gains toward 0.7232, followed by the April high at 0.7316. The triangle pattern has a measured move objective of 0.7608. Support is now located at 0.7095 and 0.6895. Daily NZD/CAD Candle Chart: Symmetrical Triangle Breakout 6
Global FX Strategy: USD/CAD on Verge of Bullish Trend Reversal 12 June 2009 CAD/MXN Resolving a Rising Wedge Pattern Last but not least, CAD/MXN is in the process of piercing a support trendline at 12.0860. A daily close below this level would produce the bearish resolution of a rising wedge pattern and project additional losses toward 11.8770 and 11.6970. Note that the daily studies have traced out a bearish divergence from overbought levels. Resistance is now located at 12.0860 and 12.3050. Daily CAD/MXN Candle Chart: Breakdown From Rising Wedge Pattern 7
Global FX Strategy Russell Jones Global Head of Fixed Income and Currency Research Royal Bank of Canada Europe Limited +44 207 029 7076 Adam Cole Global Head, FX Strategy Royal Bank of Canada Europe Limited +44 207 029 7078 Sue Trinh Senior Currency Strategist Royal Bank of Canada, Sydney Branch +61 2 9033 3333 Matthew Strauss CFA Senior Currency Strategist RBC Dominion Securities Inc. +1 416 842 6631 David Watt Senior Currency Strategist RBC Dominion Securities Inc. +1 416 842 4328 Disclaimer George Davis CMT Chief Technical Analyst RBC Dominion Securities Inc. +1 416 842 6633 RBC Capital Markets is the business name used by certain subsidiaries of Royal Bank of Canada, including RBC Dominion Securities Inc., RBC Capital Markets Corporation, Royal Bank of Canada Europe Limited and Royal Bank of Canada - Sydney Branch. The information contained in this report has been compiled by RBC Capital Markets from sources believed to be reliable, but no representation or warranty, express or implied, is made by Royal Bank of Canada, RBC Capital Markets, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this report constitute RBC Capital Markets' judgement as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. RBC Capital Markets research analyst compensation is based in part on the overall profitability of RBC Capital Markets, which includes profits attributable to investment banking revenues. Every province in Canada, state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, the securities discussed in this report may not be eligible for sale in some jurisdictions. This report is not, and under no circumstances should be construed as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. To the full extent permitted by law neither RBC Capital Markets nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of RBC Capital Markets. Additional information is available on request. To U.S. Residents: This publication has been approved by RBC Capital Markets Corporation, which is a U.S. registered broker-dealer and which accepts responsibility for this report and its dissemination in the United States. Any U.S. recipient of this report that is not a registered broker-dealer or a bank acting in a broker or dealer capacity and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report, should contact and place orders with RBC Capital Markets Corporation. To Canadian Residents: This publication has been approved by RBC Dominion Securities Inc. Any Canadian recipient of this report that is not a Designated Institution in Ontario, an Accredited Investor in British Columbia or Alberta or a Sophisticated Purchaser in Quebec (or similar permitted purchaser in any other province) and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report should contact and place orders with RBC Dominion Securities Inc., which, without in any way limiting the foregoing, accepts responsibility for this report and its dissemination in Canada. To U.K. Residents: This publication has been approved by Royal Bank of Canada Europe Limited ('RBCEL') which is authorized and regulated by Financial Services Authority ('FSA'), in connection with its distribution in the United Kingdom. This material is not for general distribution in the United Kingdom to retail clients, as defined under the rules of the FSA. However, targeted distribution may be made to selected retail clients of RBC and its affiliates. RBCEL accepts responsibility for this report and its dissemination in the United Kingdom. To Persons Receiving This Advice in Australia: This material has been distributed in Australia by Royal Bank of Canada - Sydney Branch (ABN 86 076 940 880, AFSL No. 246521). This material has been prepared for general circulation and does not take into account the objectives, financial situation or needs of any recipient. Accordingly, any recipient should, before acting on this material, consider the appropriateness of this material having regard to their objectives, financial situation and needs. If this material relates to the acquisition or possible acquisition of a particular financial product, a recipient in Australia should obtain any relevant disclosure document prepared in respect of that product and consider that document before making any decision about whether to acquire the product. To Hong Kong Residents: This publication is distributed in Hong Kong by RBC Investment Services (Asia) Limited, a licensed corporation under the Securities and Futures Ordinance. This material has been prepared for general circulation and does not take into account the objectives, financial situation, or needs of any recipient. Hong Kong persons wishing to obtain further information on any of the securities mentioned in this publication should contact RBC Investment Services (Asia) Limited at 17/Floor, Cheung Kong Center, 2 Queen's Road Central, Hong Kong (telephone number is 2848-1388). To Singapore Residents: This publication is distributed in Singapore by RBC (Singapore Branch), a registered entity granted offshore bank status by the Monetary Authority of Singapore. This material has been prepared for general circulation and does not take into account the objectives, financial situation, or needs of any recipient. You are advised to seek independent advice from a financial adviser before purchasing any product. If you do not obtain independent advice, you should consider whether the product is suitable for you. Past performance is not indicative of future performance. Registered trademark of Royal Bank of Canada. RBC Capital Markets is a trademark of Royal Bank of Canada. Used under license. Copyright RBC Capital Markets Corporation 2009 - Member SIPC Copyright RBC Dominion Securities Inc. 2009 - Member CIPF Copyright Royal Bank of Canada Europe Limited 2009 Copyright Royal Bank of Canada 2009 All rights reserved.