President Trump announced possible tariffs on two countries with currencies trading at multi-year lows. With a weak currency and potential tariffs, the Canadian dollar seasonal sell pattern may have a fundamental catalyst needed for traders to profit.
Source: Barchart
The daily Canadian dollar (CAD) chart shows the sideways activity it has been stuck in since 2016. Currently, the CAD is trading near the low of this trading range. With a daily downtrend since trading near the top of the channel in 2021, there is a good chance the CAD will revisit the .68000 floor price lows. Both times, when the CAD visited the .68000 area, solid demand for the currency was found. With threats of tariffs overhanging the CAD, the question is, will the price floor hold this time?
Source: Barchart
Looking at the daily CAD above, we can zoom into the price action and see how well-established the downtrend is in more detail, especially after breaking out of the October 2022 to August 2024 trading range lows. The last bar on the right of the chart is the day of the potential tariff announcements. Take note of the price action after the initial sell-off, and the price had retraced nearly 50%.
The initial sell-off was due to the polarized left-leaning media.
Immediately after the announcement of the tariffs, the left-leaning media began reporting that the tariffs would bring higher prices to consumers in our country. Making comments about passenger cars increasing 2.5% and let's not forget something we all need every day, golf shoes will increase 6%. These fake news comments only serve to divide our country more than it already is. Of course, most of these lame publications are losing readership so fast that they must create fear and division to get read. With any luck, Jeff Bezos's changes in the Washington Post will make a big difference in how Americans get their news. It's genuinely pretty easy to write unbiased news.
Almost 80 million legal American voters elected President Trump to close the southern border and reduce the inflow of dangerous drugs. To accomplish this, he will need cooperation from both Mexico and Canada. China is also causing our drug problems, but I'll keep this to our country's neighbors.
Trump is a businessman. He knows the power of negotiations. Trump will be sworn in as our president on January 20, 2025. Until then, he has no power to put tariffs on any country. But he is smart enough to know that by letting Canada and Mexico know his plans, the numbers are on the table for all to see, and the negotiations can begin. Does anybody think this type of negotiation can be done overnight? Of course not! He wants the border to be closed as quickly as possible once he is in office.
Hours after the US media spread their fear, ALJAZEERA, a foreign news service, wrote an article titled "Canada, Mexico leaders stress cooperation after Trump tariffs threat."
The negotiations have begun.
Seasonal pattern
Seasonally, the March futures contract for the CAD makes a seasonal high near August and declines into its expiration in March.
Source: Moore Research Center, Inc. (MRCI)
MRCI research has found over the past 15 years that the March CAD futures contract (the spot forex market will have the same pattern) has a seasonal sell window with an 87% success rate.
Seasonal patterns work best when there is a catalyst to assist price action. With the fundamentals we discussed and the already weak currency, this year could offer good returns for traders.
It's important to note that while seasonal patterns can provide valuable insights, they should not be the sole basis for trading decisions. Traders must consider other technical and fundamental indicators, risk management strategies, and market conditions to make well-informed and balanced trading choices.
The seasonal sell window for the March CAD futures contract ends on December 21, 2024, and MRCI research reveals it has closed lower on this date than on December 05, 2024, for 13 of the past 15 years.
Traders can trade the standard-size futures contract (D6) to participate in this opportunity.
Source: MRCI
During the previous 15 years, three of them resulted in no closing daily drawdowns.
In closing….
The Canadian dollar's seasonal sell pattern and current fundamental catalysts, such as potential tariffs and a weak currency, present a compelling opportunity for traders. Historical data underscores the reliability of this seasonal trend, with an 87% reoccurrence rate for the March CAD futures contract. However, while these insights are promising, traders must balance this pattern with their technical and fundamental analysis to navigate market risks effectively.
As negotiations unfold following President Trump's tariff discussions, the outcome may add further momentum to the CAD's trajectory. With the March CAD futures contract's seasonal window ending on December 21, 2024, traders should remain vigilant, leveraging informed strategies to capitalize on this well-documented trend.
