Canadian Dollar, Australian Dollar Outlook: Positioning Hints Lower
Canadian Dollar, USD/CAD, Australian Dollar, AUD/USD, IG Client Sentiment - Talking Points
- Canadian Dollar awaiting the BoC as Australian Dollar eyes jobs report
- USD/CAD outlook favors upside, AUD/USD to downside on positioning
- Technical analysis hints at CAD weakness as AUD faces key support next
Canadian Dollar Eyes BoC as Australian Dollar Awaits Local Jobs Report
This week, I discussed the outlook for currencies such as the Canadian Dollar and Australian Dollar incorporating IG Client Sentiment. USD/CAD and AUD/USD face the Bank of Canada (BoC) and employment data respectively. The markets are leaning towards the dovish side of the spectrum for the BoC and the RBA this year. How are traders positioning themselves and how can that impact CAD and AUD?
USD/CAD Sentiment Outlook
According to the IG Client Sentiment report from January 21, retail trader data shows that about 53.44 percent of USD/CAD investors are net long. This is down from just under 75% earlier this month. Since then, the pair has climbed over 0.9%. From a psychological perspective, this speaks to a greater share of traders pricing in a top in USD/CAD as long positions are unwound.
We typically take a contrarian view to crowd sentiment, and the fact traders are netlong suggests USD/CAD prices may continue falling. However, traders are less netlong than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/CAD trend may extend to the upside with overall net long positioning at its lowest since the latter half of December.
Taking a look at technical analysis, USD/CAD appears to be extending its bottom from earlier this month. This follows a push above near-term falling resistance from December which appears to be building confirmation. This places the focus on immediate resistance which appears to be the psychological barrier between 1.3111 and 1.3134. A push beyond this area exposes 1.3209 before reaching highs from November.
USD/CAD Daily Chart
AUD/USD Sentiment Outlook
Ahead of Thursday’s Australian jobs report, about 63.76% of AUD/USD traders are net long according to readings from IG Client Sentiment at the times of this writing. This is up from just under 45% at the beginning of January. Since then, the currency pair has declined about 2.5% as investors unwound short positions and began increasingly price a bottom.
From here, the fact that traders are netlong suggests AUD/USD may continue falling. Positioning is further netlong than yesterday and last week.The combination of current sentiment and recent changes produces a stronger AUD/USD-bearish contrarian trading bias. This may eventually pave the way for the largest upside bias since the beginning of December.
Join me on Thursday at 00:15 GMT as I cover how the Australian jobs report can impact the road ahead for AUD/USD!
From a technical perspective, AUD/USD is facing what could be potential rising support from October – pink-dashed line below. If it holds, that may put a pause to the near-term descent from the beginning of this year. That was initiated by an Evening Star candlestick pattern which is a bearish formation. A descent through former falling resistance from 2018 places the focus on 0.6755.
AUD/USD Daily Chart
*IG Client Sentiment Charts and Positioning Data Used from January 21 Report
--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.