USD/CAD Technical Analysis: Looking Ready To Claw-Back H1 Losses

6 July 2016, 03:03
Mirza Baig
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Talking Points:

  • USD/CAD Technical Strategy: On Watch For Breakout > 1.33030 To Carry Toward 1.33+
  • Trader Sentiment Warns a Coiled Move Lower Could Be Around the Corner
  • Canadian Dollar Underperforming Post-Brexit Relative To Commodity Peers

Quick Fundamental Take:

The US Dollar has failed to weaken as markets pushed back rate hike expectations to 2018. US Dollar weakness and Canadian Dollar strength played the main role in the drop of USD/CAD by ~15%.

However, WTI Crude Oil (CFD: USOil) looks to have found strong resistance near ~$49/bbl at a time when the US Dollar is showing resilience. If the US Dollar can start to lift higher as the price of WTI Crude Oilbegins to fall, we could see the resurgence of the trend that took USD/CAD from ~0.94 in 2011 up to 1.4688 in January providing a ~52% rise.

Technical Focus:

USD/CAD Is Pushing Against Resistance, Watching For a Breakout After Trendline Holds

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USD/CAD looks to be breaking out of a period of consolidation as the US Dollar’s strength may resume. In such a case, we’d expect to see an aggressive move higher toward the 38.2-61.8% Fibonacci Retracement of the January 20-May 3 Range, which could push USD/CAD up to ~1.3307-1.3832.

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However, before we can break into that zone, we should look at the resistance that USD/CAD is currently respecting. First, we have seen an original high a few weeks after the May low at 1.3187 that has yet to break over a month later. In the subsequent 25+ days, we’ve found resistance a bit lower in the ~1.3120 zone. If you’re looking for an easy to locate resistance, you can utilize the 100-DMA at 1.3028.

Therefore, if USD/CAD will resume a Bull-Run, a break above 1.3028/3187 will be the first indication that we could be on our way to multi-100 pip rally. After the trading 1.3187 in late May, the price has found support a few hundred pips lower around ~1.2650.

For now, 1.2650 is key support, and until that level is broken, either consolidation or waiting for a breakout higher will remain in focus. Tighter levels of support can be found at the Weekly Pivot at 1.2920 and the 61.8% of the Thursday-Monday range post-Brexit at 1.2845. However, these levels are likely more beneficial for shorter-term that are looking for shorter-term levels for intraday opportunities.

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Canadian Dollar Has Lost Favor per Sentiment

When looking at sentiment, crowd positioning has begun to favor further downside. For those familiar with our model, USD/CAD provided one of the strongest signals for downtrend continuation from late February to May. We use our Speculative Sentiment Index as a contrarian indicator to price action.

As of mid-day Tuesday, the ratio of long to short positions in the USDCAD stands at 1.18, as 54% of traders are long. Long positions are 8.2% lower than yesterday and 10.7% above levels seen last week. We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are long gives a signal that the USDCAD may continue lower. The trading crowd has grown less net-long from yesterday but unchanged since last week. The combination of current sentiment and recent changes gives a further mixed trading bias.

USD/CAD Speculative Sentiment Index as of Tuesday, July 5, 2016

Combining the technical picture above, with the sentiment picture, and the Intermarket analysis, there continues to be evidence for a possible breakout if USD/CAD can surmount 1.3030.

Key Levels as of Tuesday, July 5, 2016


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