The USD/CAD hit resistance last week and has been testing its strength ever since. This resistance line, existing since august, is currently presiding over the 1.0800-1.0850 range. With each test any line grows stronger – this line, furthermore, has great fundamental support.
Today is a bizarre day in the markets based on the typical trends of the past year-plus. We have equity markets experiencing turbulence – but commodity currencies, like the CAD, are rising. We have the Euro falling – even faster than the USD. Gold is making new highs – without recovery-inspired inflation concerns.
Money is leaving paper-backed securities for commodity-backed investments. If this trend continues, it will lead to an economy starved of growth, but plagued by inflation. That’s right folks, stagflation. It may not be now – this may just be the first sign. But at some point between now and one year-plus from now, we’re going to enter into a long-drawn stagflation scenario.
Where do we go from here? I see our current trend of money filtering into commodities and their currencies continuing short term – regardless of the long-term timeline for stagflation. Look for the USD/CAD to bounce off this 1.0800 resistance and fall to 1.0500. If the support at 1.0500 is broken, then 1.0000 is the final destination - parity folks. Look for this to happen quickly – in the next two weeks.
