November Commentary

So far we have looked at the stock market in terms of securities or indices. This time we will analyse the Canadian dollar versus the US dollar. The commercial activity between the two countries is huge and the value of their currency has an impact for both sides. The trough in May 2004 was a preparation for the extension of wave 5 in January 2004. During the extension, a consolidation period  took place, then the pattern resumed its course. The consolidation took the form of a triangle as can be seen on the second chart. The big question is the continuation of the impulse or an ABC correction? Considering the Elliott Oscillator, it is higher than for the previous wave (3). This invalidates this wave (3) and I assume that we have just seen in November 2004. That's it for the 1.3% sensitivity but we have to look at the next level, the roman numbers, where we are also in a wave iii. The price must retrace 2.1% to confirm the peak, that is down to $0.8194.

                                                                      

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This would then confirm as well that a wave iv is underway and it should not retrace below $0.7450. The probability is a higher number around $0.7850, still a big drop. When is this going to take place? End of this year to early next year is the range of Fibonacci time projection (around 78 bars from November 8 if it is the peak). What are the economical or political factors that would drive this correction? (Not being an economist nor a politician, I give here a layman's opinion) This is a crucial question as price does not move randomly or because Elliott said so. First the Canadian economy is slowing a little while the US economy is keeping its pace. The exchange is no doubt a factor as Canadian products are more expensive to the US importers. While the reverse is true, US products are cheaper to the Canadian importer, this saving is not passed on to the consumer and sales remain for the moment at the same level. Interest rates in both countries have maintained a spread to keep in balance; the Canadian interest rate is starting to go up faster than its counterpart although very slowly. Politically the US have re-elected M. Bush while the Canadian M. Martin has a minority government. US stability vs. a less stable Canadian will bear a little on the currency. All these factors are short term and the Canadian dollar could very well resume its upwards course... to parity? Who knows?