Everyone is bearish on the Loonie, but have we missed the rebound signal?

[Macro Minds]

I’ve been reading the sentiment across the boards this week, and the consensus seems to be that the Canadian dollar is heading for a cliff. Every headline is talking about weakness against the majors as if the trajectory is set in stone.

Honestly, I think the herd is missing the forest for the trees. Whenever the market gets this universally bearish on the CAD, it usually signals that the worst is already priced in. We are seeing a lot of "flight to safety" into the USD, but looking at the underlying commodity demand and the fact that the Bank of Canada has less room to maneuver than people think, I suspect this "weakness" is actually a prime buying opportunity for those willing to go against the grain.

Are we just caught in a temporary sentiment trap, or is there anyone else here actually looking at the long-term fundamentals instead of just panic-selling because of the weekly charts? Why is everyone so convinced the bottom is falling out right when the shorts are getting crowded?

 

[EthanCole]

Spot on with the crowded shorts observation. When everyone and their dog is looking at the exact same weekly chart and screaming short, that's usually when the rug gets pulled.

I'm sitting on my hands for now though. Zoomed out to the daily and I just want to see a proper higher low form before I even think about stepping in. No point trying to catch a falling knife just because sentiment is lopsided. Patience pays.