Canadian Dollar Price Outlook: Loonie Breakout Tests USD/CAD Support

The Canadian Dollar has rallied to multi-month highs against the US Dollar with price now testing a key support pivot near the March swing lows. These are the updated targets and invalidation levels that matter on the USD/CAD charts.

USD/CAD DAILY PRICE CHART

(Click on image to enlarge)

Technical Outlook: In my latest Canadian Dollar Price Outlook we noted that the near-term risk was for a larger setback in USD/CAD with a break lower targeting the, “1.3435/37 support pivot- look for a bigger reaction there if reached.” A break and retest of this level last week as charged a 2.2% drop with price testing confluence support at 1.3258 into the start of the week. A gap lower into the Sunday open has already filled with price trading just above Fibonacci support.

Resistance stands at 1.3357 with broader bearish invalidation now back at the 1.3435/37 pivot zone. A break lower from here keeps the focus on more significant support at the 61.8% extension / 78.6% retracement at 1.3175/98.

USD/CAD 120MIN PRICE CHART

(Click on image to enlarge)

Notes: A closer look at price action shows Loonie trading within the confines of a descending pitchfork formation extending off the May lows with the upper parallel further highlighting the 6657 resistance zone. The pullback is now testing initial support here at 6620 – a break lower would exposes 6596 backed by 6574– both areas of interest for possible exhaustion. Bullish invalidation rests with the lower parallel / 61.8% retracement at 6552. A topside breach would keep the focus on subsequent resistance objectives at 6684and the yearly open / 50% retracement at 6705/12 – look for a bigger reaction there IF reached.

Bottom line: The USD/CAD breakdown has price testing the first major support pivot and while the broader outlook remains weighted to the downside, we could see some price exhaustion here. From a trading standpoint, a good spot to reduce short-exposure / lower protective stops. Look for price exhaustion into the upper parallels for possible entries with a break of the lows targeting more significant support into the 1.32-handle. Review my last Canadian Dollar Weekly Price Outlook for a longer-term technical picture on USD/CAD.

USD/CAD TRADER SENTIMENT

(Click on image to enlarge)

• A summary of IG Client Sentiment shows traders are net-long USD/CAD - the ratio stands at +1.23 (55.1% of traders are long) – weak bearish reading
• The percentage of traders net-long is now its highest since February 13th
• Long positions are 19.6% higher than yesterday and 55.1% higher from last week
• Short positions are 2.9% lower than yesterday and 45.0% lower from last week
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall. Traders are further net-long than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger USD/CAD-bearish contrarian trading bias from a sentiment standpoint.