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USD/CAD Overloved?

USD/CAD Overloved?

Kristian Kerr, Sr. Currency Strategist

Talking Points

  • USD/CAD touches highest level since April of 2009
  • Spot testing major long-term retracement level

Unfamiliar with Gann Square Root Relationships? Learn more about them HERE.

USD/CAD traded at its highest level since April of 2009 earlier today. To say the advance over the past few weeks has been impressive is probably a bit of an understatement as the pair has overcome a multitude of key long-term Fibonacci levels this past month including the 61.8% and 78.6% retracements of the 2009-2011 decline and the 38.2% and 50% retracements of the 2001-2007 decline. Overcoming just one of these levels would be an important technical development, but breaching all four in a matter of weeks is almost unprecedented. Not surprisingly sentiment towards the CAD has collapsed during this time with the DSI (Daily Sentiment Index) now at levels of extreme pessimism on every timeframe out to three weeks. From a contrarian perspective this lopsided sentiment is a cause for concern and the sentiment profile is now actually very similar to the one in JPY heading into December. We think like in yen there is a strong chance this extreme sentiment situation will lead to a decent USD/CAD correction in the near future, but we will need to see price action begin to confirm this thinking before actually positioning against this near parabolic uptrend.

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USD/CAD Monthly Chart: January 29, 2015

Charts Created using Marketscope – Prepared by Kristian Kerr

Key Event Risk in the Week Ahead:

LEVELS TO WATCH

Resistance: 1.2700 (Psychological), 1.2720 (Feb 2009 monthly close)

Support: 1.2560 (Gann), 1.2500 (Psychological)

Strategy: Sell USD/CAD

Entry: Sell USD/CAD if spot closes below 1.2625 within the next two trading days.

Stop: Daily close above 1.2680

Target: 1.2500

--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

To contact Kristian, e-mail instructor@dailyfx.com. Follow me on Twitter at@KKerrFX.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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