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USD/CAD Bias Higher After Ichimoku Validated As Support

USD/CAD Bias Higher After Ichimoku Validated As Support

2016-08-05 15:50:00
Tyler Yell, CMT, Currency Strategist
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Bias: USD/CAD Bias Higher After Ichimoku Validated As Support

Point to Establish Long Exposure: On Fib Based Retracement from 9/17 Low

Target 1: 1.33113 38.2% Fibonacci Retracement of 2016 Range

Target 2: 1.3574 50% Fibonacci Retracement of 2016 Range

Invalidation Level: Daily Close below 8/5 Low at 1.30078

Fundamentals:

The oil outlook continues to paint an ugly picture for the Canadian dollar. As of this week, WTI Crude Oil (CFD: US Oil) briefly dipped into bear market territory, and the oversupply doesn’t look to be diminishing soon.

Canada had very disappointing employment report on Friday that showed Canada lost 31,300 Jobs in July as the jobless rate rose to 6.9%. The bad data also aligned with a fall in the participation rate to 65.5%. After this data print, USDCAD was bid thanks in large part to the disparity between the US Employment figures and Canada’s employment. Adding insult to injury, the Trade Balance was its widest ever showing that outsiders are not buying goods. June’s trade deficit was the widest-ever of C$3.63B as per Bloomberg.

Contract the limp economic picture of Canada to the United States and you start to get a Fundamental understanding of why this analyst pick is long USD. While the US Dollar has failed to get serious talk of subsequent rate hikes, the US Dollar at lease seems supported in the 11,900/12,000 area.

Additionally, the Economic Surprise Index shows that the US has been on a steady streak this summer of beating economist expectations. Put these two components together of a strong(er) the United States economy and a weak(er) Canadian economy and you can get a sense of why we’re looking for further upside on USD/CAD.

Technical Focus:

USD/CAD Bias Higher After Ichimoku Validated As Support

The overall bullish view was encouraged by Friday’s basing candle off the 38.2% Fibonacci Retracement of the June – July range near 1.3020. You can now look to the 1.3020 low to provide buying interest for a move towards the 1.3311/3574. As you can see on the chart, the price has rested comfortably above the 100-DMA and the Ichimoku cloud. The time spent above these trend filters brings the anticipation that the next big moves will be toward to the targets mentioned and away from Friday’s low.

Second resistance: 1.3574 50% Fibonacci Retracement of 2016 Range

First resistance: 1.33113 38.2% Fibonacci Retracement of 2016 Range

Spot: 1.3191

First support: 1.3097 August Opening Range Pivot Level

Second support: Daily Close below 8/5 Low at 1.30078

USD/CAD Sentiment Is Providing A Mixed Picture:

USD/CAD Bias Higher After Ichimoku Validated As Support

The ratio of long to short positions in the USDCAD stands at 1.06, as 51% of traders are long. Long positions are 7.1% lower than yesterday and 0.1% above levels seen last week. Short positions are 4.3% higher than yesterday and 23.1% below levels seen last week.

Open interest is 1.9% lower than yesterday and 5.8% below its monthly average. We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are long gives asignal 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.

T.Y.

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

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