USD/CAD Freefalls into Critical Zone

2017-06-12 19:59:00 Michael Boutros

Talking Points

USD/CAD breaks key support confluence; sell-off approaching initial support targets
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Technical Outlook:USD/CAD broke below key technical support today at the 2017 open at 1.3435. Note that this break also invalidates a trendline extending off the 2/16 low and keeps the broader focus lower while below this threshold.

The decline is now approaching initial support at the confluence of the 200-day moving average and a pair of parallels around ~1.3325- a break lower still has to contend with the 1.3284/96 where the 61.8% extension of the decline off the yearly highs converges on the 61.8% retracement of the 2017 range. Both of these zones represent areas of interest for possible exhaustion / near-term recovery in price. Interim resistance stands at 1.3380 with our broader bearish invalidation level set to 1.3461.A break below the 1.3284/96 Fibonacci barrier targets subsequent targets at the April swing low at 1.3223 backed by critical support into 1.3141/45.

USD/CAD 240min

Notes: A closer look at price action highlights a descending slope we’ve been tracking off the yearly highs with price now testing the lower parallel. Note that momentum is testing its lowest levels since 5/24 when the pair rebounded off this same slope.

That said, from a trading standpoint, today’s price action constitutes an objective break of the monthly opening range and keeps our focus lower sub-1.3435 with a breach above 1.3461 needed to shift the focus back towards the monthly opening range highs near 1.3543. Bottom line: if we’re going to see a bounce, it may come from these next support targets- either way we’ll want to ultimately use such a rally as an opportunity to get back on the short-side. Added caution is warranted heading into this week's highly anticipated FOMC interest rate decision with the release and subsequent presser with Chair Janet Yellen likely to fuel added volatility in the USD crosses.

A summary of IG Client Sentiment shows traders are net-long USD/CAD- the ratio stands at +1.21 (57.7% of traders are long)- bearish reading
Long positions are 0.5% lower than yesterday and 8.1% lower from last week
Short positions are 21.8% higher than yesterday but 18.8% lower from last week
Although broader sentiment continues point lower for the pair, it’s worth noting that the recent surge in short-positioning leaves softens the bearish signal in the near-term. That said, we’ll continue to favor fading strength in the pair while below structural resistance.

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