DailyFX.com -

Talking Points:

- CAD posting large turnaround after Tuesday merger announcement.

- USDCAD, EURCAD, GBPCAD all break through significant support.

- US Dollar strength in August shouldn't surprise - it's a seasonally strong month.

One of our primary focuses during these last few summer weeks has been on exploiting Canadian Dollar weakness, in particular against the British Pound and the US Dollar. Even as recent as yesterday did it appear like USDCAD was ready to break through recent resistance near C$1.0985, on route to 1.1240 and above.

Today's charts tell a very different story about the Canadian Dollar, across the CAD-complex. In USDCAD, 1.0985 held as resistance and instead price swung lower and broke down through the rising trendline rooted in the July 11 swing low.

USDCAD Daily Chart: January 2014 to Present

Sharp CAD Reversal Negates USD/CAD Bull Flag, Stuns EUR/CAD, GBP/CAD

In GBPCAD and EURCAD the stories are similar: recent lows established between May and July knocked out as support. For EURCAD, this may particularly perilous as the uptrend supporting price from the August 2012 and May 2013 lows was taken out in the process.

As we (as humans) are always trying to find an explanation to a series of events, we can't help but embrace our neurological instinct and take a stab here.

It is possible that, in the vaccuum of summer trading (lower volume, lower volatility than other non-holiday periods of the year), the cross-border US-Canadian merger between Burger King and Tim Horton's, an explicit tax inversion deal done to skirt the world's highest corporate tax rate in the United States, has moved the market.

Due to the fact that Burger King, a US entity, is buying Tim Horton's, a Canadian entity, it needs to exchange USD into CAD to transact the deal. At $11B, significant capital flows can be generated, perhaps enough to sway the entire CAD-complex. Indeed, the timing of the CAD turnaround and the announcement of the deal is too coincidental to ignore.

See the above video for technical considerations in USDCAD, GBPCAD, and EURCAD.

Read more: Euro Exposed to Fresh Lows as Draghi Invites New QE Speculation

Related Articles
  1. Forex Education

    Four Currencies Under the Spotlight in 2016

    With currencies having become the “tail that wags the dog,” in terms of their impact on the global economy, these four currencies will be under the spotlight in 2016.
  2. Forex Fundamentals

    These Currencies Are The Biggest Losers Of The Stock Downturn

    Here’s a list of the hardest-hit currencies amid the global stock market mayhem.
  3. Forex Strategies

    Will the Euro Continue to Rally? (EUO)

    The euro is rallying. Should investors chase this performance or is the real opportunity on the other side of the trade?
  4. Investing News

    China’s Forex Reserves Dropped Significantly

    China’s forex​ reserves dropped by a record $93.9 billion at the end of August to $3.56 trillion because the Central Bank has been selling dollars to provide a cushion to the falling yuan​
  5. Forex

    The Pros and Cons of a Fully Convertible Rupee

    Amid the rising economic power of India, the talks of making the Indian currency fully convertible are gaining momentum. We look at the pros and cons.
  6. Forex Fundamentals

    Chinese Yuan an Unlikely Reserve Currency

    As the world's second largest economy, China's challenge to America’s dominance includes a push to make the yuan (RMB), the world’s reserve currency. Whether it can do that now is unclear.
  7. Economics

    How Currency Enforcement Helped Sink The Trans-Pacific Partnership (TTP)

    One particular barrier to trade that has received much attention of late and caused delays in negotiations of the TPP is exchange-rate manipulation, by which a country artificially devalues its ...
  8. Forex

    Top U.S Forex News Sites

    Breaking news moves forex markets. Here are the top U.S. sites for tracking forex news.
  9. Investing

    Financial News Comparison: Bloomberg Vs. Reuters (BAC, GOOG)

    Access to financial information has grown with the expansion of digital news. Bloomberg and Thomson Reuters lead the pack, claiming a majority of the business information market.
  10. Economics

    Who Benefits From South Korea's Lowered Interest Rates?

    South Korea is the latest country to cut interest rates in an attempt to stimulate economic growth.
Trading Center