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US Dollar May Fall if S&P 500 Rises on Short Bets, USD/CAD Eyes Support

US Dollar May Fall if S&P 500 Rises on Short Bets, USD/CAD Eyes Support

Daniel Dubrovsky, Strategist

US Dollar, S&P 500, USD/CAD, Trader Positioning - Talking Points

  • US Dollar at risk as markets look forward to local fiscal stimulus
  • Sentiment warns S&P 500 may rise in near term, hurting the USD
  • USD/CAD outlook still biased to the upside on sentiment, trends

What Does Trader Positioning Say About the US Dollar Price Trend?

In this week’s session, I discussed the outlook for the US Dollar given rising hopes of local fiscal stimulus. That helped bring the largest single-day gain in the Dow Jones since 1933. The cautious improvement in sentiment is weighing against the haven-linked Greenback for the time being.

There may be scope for near term losses after my majors-based USD index took out “inner” support on the chart below. Down the road if “outer” support holds, the dominant uptrend could remain intact. From here, what is the outlook given signals in trader positioning on Wall Street and thereby the Dollar?

Majors-Based US Dollar Index - 4-Hour Chart

US Dollar May Fall if S&P 500 Rises on Short Bets, USD/CAD Eyes Support

USD Index Chart Created in Trading View

S&P 500 Sentiment Outlook

According to IG Client Sentiment, about 50.28% of traders are net long the S&P 500 at the time of writing. This is after a 23.5% and 27.92% increase in short bets over a daily and weekly basis respectively. Recent changes in sentiment warn that the current price trend may soon reverse higher despite the fact traders remain netlong. That may speak to investors attempting to pick the next top in the S&P 500.

US Dollar May Fall if S&P 500 Rises on Short Bets, USD/CAD Eyes Support

S&P 500 Technical Analysis

From a technical standpoint, S&P 500 futures managed to close above “inner” resistance on the 4-hour chart below. Further upside confirmation may extend the recent bottom as prices aim towards “outer” resistance. The latter may maintain the dominant downtrend since topping in late February. Prices are also nervously testing rising support from 2009. Resuming losses entails taking out support at 2174.

S&P 500 Futures 4-Hour Chart

US Dollar May Fall if S&P 500 Rises on Short Bets, USD/CAD Eyes Support

S&P 500 Futures Chart Created in Trading View

Canadian Dollar Sentiment Outlook

IG Client Sentiment shows that about 25.29% of retail traders are net long USD/CAD at the time of writing. Net-short positioning is on the rise, up 9.01% and 10.64% over a daily and weekly basis respectively. The combination of current sentiment and recent changes offers a stronger USD/CAD-bullish contrarian trading bias. From a psychological standpoint, that would speak to more investors attempting to pick the top.

US Dollar May Fall if S&P 500 Rises on Short Bets, USD/CAD Eyes Support

Canadian Dollar Technical Analysis

USD/CAD continues to trade sideways under highs from 2016, making for a key range of resistance between 1.4576 to 1.4690. Maintaining the upward trajectory are two levels of support, “outer” and “inner” below. Taking out the former may pave the way to test the latter which could down the road bring declines to a pause. Resuming the uptrend entails taking out 2016 peaks.

USD/CAD Daily Chart

US Dollar May Fall if S&P 500 Rises on Short Bets, USD/CAD Eyes Support

USD/CAD Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from March 24 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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