USD/CAD Rally Eyes Key Resistance Targets

USD/CAD Daily Chart

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Technical Outlook: USDCAD rebounded just ahead of a key confluence support zone early this month with the rally now approaching key regions of interest for near-term resistance / short entries at 1.2416/20 & 1.2481-1.2504. Initial support now rests with the median-line parallel (red) currently ~1.23 with a close below the yearly low-day close at 1.2156 needed to validate resumption of the broader downtrend.

USD/CAD 240min

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Notes:A closer look at price action highlights further highlights the 1.2416/20 resistance zone- a region defined by the 50% retracement of the August decline and the 61.8% extension of the 2016 decline. Note that the 2012 trendline support (daily chart) also converges on this region. A breach above this zone risks a run into the monthly open at 1.2481 backed closely by our broader bearish invalidation level at 1.2504- both levels of interest for short-entries.

Look for a break below the weekly opening-range lows at 1.2313 to validate the reversal with such a scenario targeting basic trendline support / 61.8% retracement at the 1.22-handle. Bottom line, although broader USD strength is a concern, from a trading standpoint, I’ll be on the lookout for exhaustion up here while below 1.25.

• A summary of IG Client Sentiment shows traders are net-long USDCAD- the ratio stands at +1.63 (62.0% of traders are long) – bearish reading
• Retail has been net-long since Jun 7th; price has moved 8.4% lower since then
• Long positions are 5.5% higher than yesterday and 9.4% lower from last week
• Short positions are 7.1% higher than yesterday and 30.3% higher from last week
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDCAD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USDCAD price trend may soon reverse higher despite the fact traders remain net-long.