It is safe to say that most of us agree that the economy moves in cycles. Although sometimes differently labeled those cycles are: Peak, Recession, Trough, Expansion and repeat. Last week, the National Bureau of Economic Research declared that the U.S. has been in a recession for the past year. (National Economic Trends 12/08) By doing a little bit of online research or remembering economics classes, you will find that historically, the best investments during a recession are in commodities, so there lies the question: Is this the time to go long commodity currencies? Looking at the AUDUSD and USACAD weekly charts, it sure does seem like it and here is why.
If we look at the AUDUSD chart below, the pair had a beautiful run up from .4773 in April 2001 to .9847 in July 2008 which was followed with a decline to .6326 in October 2008. That's right, it took the Aussie 4 months to give back close to 60% of its gains against the Dollar in over 7 years. Now that the decline has slowed and the pair has been ranging for the past 8 weeks, I believe we have a very good opportunity for a reversal and a move up which will coincide with commodity strenght if the theory of commodities doing well in U.S recessions holds true. The green line on the chart below represents a DeMark break or a trend-reversal trigger, it will most likely take another couple of weeks before the trade is ready for our investment but we will keep an eye on the pair over the next few weeks and see when the time will come. As it stands today, the BUY opportunity will come at around 0.6820.
The Canadian chart shows a very similar story, decline from 1.6196 in December 2001 to .9056 November 2007 to just about a 56% retracement in October 2008 (to around 1.3015) and now a question of the existence of a sell opportunity? The red line in the chart below indicates a point of trend reversal, unlike the Aussie, the Canadian seems to be ready for its reversal now. The prime entry level for the pair is a short at 1.2450.
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