USD/CAD Risks Near-term Breakout on NFPs / Canada Employment

2016-07-07 19:06:00 Michael Boutros

Talking Points

USDCAD remains in consolidation ahead of NFPs / CAD Employment
Updated targets & invalidation levels

USDCAD Daily

Chart prepared by Michael Boutros

Technical Outlook: USDCAD has continued to trade within the confines of an ascending median-line formation (Modified Schiff) extending off the 2016. Earlier this week we highlighted a near-term topside bias on USDCAD targeting key resistance into 1.3020- Indeed the pair rallied as high as 1.3055 before reversing sharply yesterday at the median-line. The pullback rebounded today off the convergence of basic trendline support off the 6/23 low and the 50-line of the ascending structure.

The focus remains on a breakout of this consolidation formation with a general topside bias favored while above today’s low at 1.2877. A breach above the May high-day close at 1.3121 needed to validate a continuation higher in USDCAD.

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USDCAD Hourly

Notes: We setup a long-trigger in today’s Intraday Strategy Webinar on SB Trade Desk with the release of crude inventories in New York further fueling the advance off the 78.6% retracement at 1.2879. Interim resistance is eyed at 1.3015/17 where the 78.6% retracement of the decline converges on the 5/9 & 6/30 swing highs. Subsequent topside targets are eyed at basic trendline resistance extending off last week’s high, 1.3052 and the 88.6% retracement / triangle resistance at 1.3087/95.

Interim support rests with the near-term median-line extending off last week’s low backed by 1.2943 & 1.2910/17 (near-term bullish invalidation). A break below 1.2880 would be needed to shift the broader focus back to the short-side targeting the monthly opening range lows & median-line support. A quarter of the daily average true range yields profit targets of 32-36 pips per scalp. Added caution is warranted heading into tomorrow’s U.S. & Canadian employment releases with the prints likely to fuel increased volatility in USD & CAD crosses.

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A summary of the DailyFX Speculative Sentiment Index (SSI) shows traders are net long USDCAD- the ratio stands at +1.19(54% of traders are long)-weakbearishreading
Yesterday the ratio was 1.05- Long positions are 9.2% higher than yesterday and 1.8% above levels seen last week.
Open interest is 3.0% higher than yesterday and 4.1% below its monthly average.
Although an increase in long-exposure alongside building open interest would typically be a bearish development, it’s important to note that SSI is trend indicator and USDCAD largely remains in a range- As such, if the market breaks to the upside- a flip to net-short positioning would be a textbook buy signal.

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