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- USD/CAD down more than 3.2% off December highs- Recovery to offer opportunity
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USD/CAD Weekly Chart
Technical Outlook: In last month’s USD/CAD Weekly Technical Perspective we noted that, “50% retracement of the 2017 range- note that this level converges on the downslope resistance and has continued to govern the highs since late-October. Heading into the close of the year the focus is on a break of the 1.2575-1.2927 range to offer guidance (downside break favored).”
An outside weekly-reversal candle off 1.2927 in mid-December shifted the focus to slope support with a break lower last week keeping the broader focus lower in USDCAD (note that December also marked and outside monthly-reversal candle- bearish). That said, a weekly close below the long-term 200-week moving average would be needed to keep the immediate decline viable.
USD/CAD Daily Chart
The daily chart highlights near-term confluence resistance at 1.2598 where the October opening-range high converges on the 100-day moving average. This level is backed by the 2012 trendline (red) with our broader bearish invalidation level steady at the slope extending off the 2017 highs (purple) currently ~1.2750s.
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USD/CAD 240min Chart
Notes: A closer look at price action sees the pair trading within the confines of a descending pitchfork formation extending off the late-October high. Interim support targets rest at 1.2485/89 backed by the lower median-line parallel (currently ~1.2440s) and the triple-top measured objective / 61.8% extension at 1.2415/23- Note that this threshold converges on the lower parallel heading into next week.
Bottom line: Near-term bullish divergence into these lows highlights the threat of a recovery here but ultimately we’ll favor fading strength in the pair while below the median-line / 1.2660. Keep in mind that tomorrow represents considerable event risk for the pair with the simultaneous release of the U.S. Non-Farm Payroll report (NFP) and Canada employment figures likely to fuel added volatility in the USD & CAD crosses.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis mini-series
- A summary of IG Client Sentimentshows traders are net-long USDCAD- the ratio stands at +2.11 (67.8% of traders are long) – bearish reading
- Retail has remained net-long since Dec 21; price has moved 2.7% lower since then
- Long positions are 12.3% higher than yesterday and 26.0% higher from last week
- Short positions are 1.8% lower than yesterday and 9.3% lower from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDCAD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDCAD-bearish contrarian trading bias.
See how shifts in USD/CAD retail positioning are impacting trend- Click here to learn more about sentiment!
Relevant Data Releases
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- Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex or contact him at firstname.lastname@example.org