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US Dollar Positioning Outlook: USD/CAD and NZD/USD Trends Analyzed

US Dollar Positioning Outlook: USD/CAD and NZD/USD Trends Analyzed

2020-02-05 05:00:00
Daniel Dubrovsky, Analyst
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US Dollar, USD/CAD, NZD/USD, IG Client Sentiment - Talking Points

US Dollar May Rise Against Canadian Dollar and New Zealand Dollar on Positioning Hints

On average, the US Dollar has been treading cautiously higher since the beginning of 2020 against some of its major counterparts. Recently, a deterioration in risk appetite due to the coronavirus outbreak has fueled a premium for safety. This tends to benefit the world’s most-liquid asset. From a psychological perspective, there may be yet more room for it to climb against the Canadian Dollar and New Zealand Dollar.

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Canadian Sentiment Outlook

According to the IG Client Sentiment report from February 4, retail trader data shows that about 21.11% of positions in USD/CAD are net long. This is down from just under 75% upside bias in early January. Since then, prices have climbed over 2.5%. Traders are further netshort than yesterday andlast week. The combination of current sentiment and recent changes offers a stronger USD/CAD-bullish contrarian trading bias. From a psychological perspective, that may speak to more investors attempting to pick the top.

US Dollar Positioning Outlook: USD/CAD and NZD/USD Trends Analyzed

USD/CAD Technical Analysis

From a technical standpoint, USD/CAD is nearing highs prices reached in November. This is also just below the key psychological barrier between 1.339 to 1.3383. Breaching the latter may put an end to the consolidation mode that the Canadian Dollar has seen since July. Otherwise if resistance holds, USD/CAD may eventually make its way towards lows from December and early January.

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USD/CAD Daily Chart

US Dollar Positioning Outlook: USD/CAD and NZD/USD Trends Analyzed

USD/CAD Chart Created in Trading View

New Zealand Dollar Sentiment Outlook

Taking a look at IG Client Sentiment, about 67.07% of traders are net long NZD/USD. This is up from about a 30% upside bias from early January. Since then, prices have fallen over 4%. Traders are further netlong than yesterday and last week, and the combination of current sentiment and recent changes offers a stronger NZD/USD-bearish contrarian trading bias. From a psychological standpoint, that would likely speak to a greater share of investors attempting to chase the bottom in the New Zealand Dollar.

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US Dollar Positioning Outlook: USD/CAD and NZD/USD Trends Analyzed

NZD/USD Technical Analysis

On a daily chart, NZD/USD may be at a turning point if a Morning Star candlestick pattern sees upside confirmation. This is a bullish formation. Gains may take the New Zealand Dollar towards falling resistance from late December. For the time being, signals from IG Client Sentiment hint towards standing aside and waiting until follow-through is achieved.

NZD/USD Daily Chart

US Dollar Positioning Outlook: USD/CAD and NZD/USD Trends Analyzed

NZD/USD Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from February 4 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.

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