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USD/CAD Outlook Bearish, EUR/USD Forecast Bullish on Positioning

USD/CAD Outlook Bearish, EUR/USD Forecast Bullish on Positioning

2020-02-19 05:00:00
Daniel Dubrovsky, Analyst
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Canadian Dollar, USD/CAD, Euro, EUR/USD, IGCS - Talking Points

  • Canadian Dollar and Euro eyeing local inflation data in coming days
  • IG Client Sentiment hints that USD/CAD may fall as EUR/USD climbs
  • Technical signals seem to favor the downside in both currency pairs

How Can Trader Positioning Impact the Outlook for the Canadian Dollar and Euro?

The Canadian Dollar and Euro face inflation data this week that may alter near-term dovish expectations for the Bank of Canada and European Central Bank respectively. In this week’s session, I discussed how trader psychology is shaping the trends in USD/CAD and EUR/USD and what could be in store ahead. IG Client Sentiment (IGCS) is painting a bearish picture for the former and a bullish one for the latter.

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USD/CAD Sentiment Outlook

At the time of this writing, about 24.31% of traders are net-long USD/CAD according to IGCS. Those biased to the upside have been increasing while investors unwinding short bets have been on the rise. Recent changes in sentiment warn that the current USD/CAD price trend may soon reverse lower despite the fact traders remain net-short. That would speak to more and more investors attempting to start picking the pair’s bottom.

USD/CAD Outlook Bearish, EUR/USD Forecast Bullish on Positioning

USD/CAD Technical Analysis

From a technical standpoint, USD/CAD continues its descent following the emergence of bearish signals. These include an Evening Star candlestick pattern and the close under near-term rising support. That is leaving prices facing immediate support at 1.3208. If the latter is taken out, it would expose the psychological barrier between 1.3111 to 1.3134.

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USD/CAD Daily Chart

USD/CAD Outlook Bearish, EUR/USD Forecast Bullish on Positioning

USD/CAD Chart Created in Trading View

EUR/USD Sentiment Outlook

IGCS shows that about 74.27% of EUR/USD traders are net long, up from about a 36% upside bias in early January. Since then, prices declined about 4% as an increasing amount of investors attempted to pick the bottom in the Euro. Yet, recent changes in sentiment warn that the current price trend may soon reverse higher despite the fact traders remain net long. Bears may view this as a signal to stand aside in the interim.

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USD/CAD Outlook Bearish, EUR/USD Forecast Bullish on Positioning

EUR/USD Technical Analysis

EUR/USD has taken out lows from May 2017 as the Euro sank to its weakest point this year so far. That has exposed the 100% point of the Fibonacci extension at 1.0706. My majors-based Euro index recently flashed a bearish technical warning, hinting that EUR may on average have more room to extend its recent declines. Maintaining the downtrend in the medium-term may be potential falling resistance from December.

EUR/USD Daily Chart

USD/CAD Outlook Bearish, EUR/USD Forecast Bullish on Positioning

EUR/USD Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from February 18 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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