Commodity Currencies Are Looking Up

• Posted by Greg Harmon
• on June 27th, 2013

The commodity currencies got hit hard and fast last week. But with 3 days in the books it looks like a turn around may be brewing. The chart below of the Currency Shares Canadian Dollar Trust ($FXC), the ETF which is intended mimic the price movement in the Canadian Dollar, shows the volume subsiding after a big build up on the drastic move lower. There is also the Relative Strength Index (RSI) turning up with a Moving Average Convergence Divergence indicator (MACD) that has stopped dropping on the histogram. Even if it only retraces 50% of the last leg lower that is a sizable move for a currency.

The Australian version ($FXA) is also improving but is not quite as strong in its bounce as this point. Filling a downside gap with a MACD histogram that is nearly back to zero, with the signal line flat and a RSI that may be rising. It is very extended from the falling 50 day Simple Moving Average (SMA) so a bounce could alleviate some oversold pressure.

But what is maybe more interesting is that these commodity currencies have been highly correlated with commodities, and in particular Gold. A bounce and fall back, otherwise known as a dead cat bounce, may be enough to play for in the currencies. But if the bounce holds and continues higher then maybe it is time to dabble in Gold.

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