The US Dollar is up nearly 1.5% against the Canadian Dollar since the start of the month with the greenback attempting to pare a portion of the recent losses sustained last week after turning from technical resistance. The advance may be short-lived however and a recovery may offer more favorable opportunities with major event risk on tap this week. These are the updated targets and invalidation levels that matter on the USD/CAD charts. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.
USD/CAD DAILY PRICE CHART
(Click on image to enlarge)
Technical Outlook: In my latest USD/CAD Weekly Technical Outlook, we noted that price was responding to a key resistance zone at 1.3435/37 – “a region defined by the 61.8% retracement of the December decline and the 2017 yearly open.” The subsequent decline rebounded at confluence trendline support / the 100-day moving average around 1.3290 last week and while the immediate risk remains for a larger recovery, we’re looking for possible price exhaustion higher up with the broader rally still at risk sub-1.3437. A downside break exposes the 61.8% retracement at 1.3248 backed by critical support at the lower parallel / 200-Day moving average / monthly open at 1.3171/79.
USD/CAD 120MIN PRICE CHART
(Click on image to enlarge)
Notes: A closer look at price action shows Loonie trading within the confines of an ascending pitchfork formation extending off the yearly lows with USD/CAD rebounding off parallel support / 50% retracement last week. The advance likely has more to go with a breach above 1.3355 targeting 1.3398 backed by the 3/8 reversal day close at 1.3416 and 1.3435/37 – both regions of interest for possible price exhaustion / short-entries IF reached.
A break lower from here exposes subsequent support objectives at 1.3248 backed by key support at 1.3171/79- Look for a more significant price reaction there IF reached with weakness beyond this threshold risking substantial losses for the greenback.
Bottom line: USD/CAD has responded to confluence support and while the immediate threat is higher, the recovery remains vulnerable sub-1.3437. From a trading standpoint, look to reduce long-exposure on a move towards Fibonacci resistance and be on the lookout for possible price exhaustion. Ultimately, a downside break would have us looking for a retest of longer-term daily slope support. That said, a breach/close above the monthly high-day close at 1.3453 would be needed to mark resumption of the broader uptrend. Keep in mind the FOMC interest rate decision is on tap this Wednesday with Canada CPI slated for Friday morning- expect volatility this week.
USD/CAD TRADER SENTIMENT
- A summary of IG Client Sentiment shows traders are net-long USD/CAD - the ratio stands at +1.02 (50.4% of traders are long) – neutral reading
- Long positions are10.8% higher than yesterday and 69.5% higher from last week
- Short positions are 0.8% higher than yesterday and 34.6% 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 and last week, and the combination of current sentiment and recent changes gives us a stronger USD/CAD-bearish contrarian trading bias.
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