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Is the Canadian Dollar Primed for a Recovery in the Short Term?

Back on September 5th of this year, we examined the relationship between futures market positions on the Canadian Dollar and the value of the loonie.  At the time we argued for a short term recovery in the Canadian Dollar based on the divergence of that general correlation.  Sure enough, the loonie recovered over the next several days and the correlation was restored.  In light of the most recent move down by the Canadian Dollar, we thought it would make sense to reexamine the relationship.   As shown below, this particular metric seems to suggest that the loonie is in for a short term recovery. The white line is the net number of long vs short futures contracts outstanding on the Canadian Dollar.  The orange line is the value of the Canadian Dollar.

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