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Canadian Dollar Price Outlook: Trading the USD/CAD Breakdown

Canadian Dollar Price Outlook: Trading the USD/CAD Breakdown

2018-10-01 16:59:00
Michael Boutros, Strategist
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The Canadian Dollar is on the offensive with news of a renewed US / Mexico / Canada trade agreement further supporting the Loonie early in the week. Here are the updated targets and invalidation levels that matter on the USD/CAD charts heading into the start of October trade. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.

USD/CAD Daily Price Chart

USD/CAD Price Chart - Daily

Technical Outlook: In my most recent Weekly Technical Perspective on the USD/CAD, we highlighted a key confluence support zone at 1.2880– with, “The risk remains weighted to the downside in USD/CAD while below 1.3130.” Price gapped lower into the weekly / monthly open with the decline marking a break below 2018 up-trend support (purple) and the 200-day moving average. Initial daily support now rests with the lower 50-line of the descending pitchfork formation extending off the yearly highs.

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USD/CAD 240min Price Chart

USD/CAD Price Chart - 240min

Notes: A closer look at Canadian Dollar price action further highlights the weekly gap open with the opening range high converging on the 38.2% retracement of the 2017 advance at 1.2880. We’ll reserve the Friday close at 1.2908 as our near-term bearish invalidation level with a breach / close above needed to shift the focus back to the long-side.

Initial support eyed at 1.2778 backed by 1.2724/28- a region is defined by the confluence of the 50% retracement and the 100% extension pf the June declines. Look for a more significant reaction off that threshold with a break lower eyeing subsequent support targets at the lower parallel, currently ~1.2663.

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Bottom line: The focus remains lower in USD/CAD with price now approaching initial support targets. From a trading standpoint, look to reduce short-exposure / lower stops at these levels with a near-term recovery in price to offer more favorable entries while below 1.2908. Keep in mind that we are heading into the end of the start of a new month / quarter with key employment data from both the U.S. and Canada on Friday likely to fuel added volatility in USD/CAD price action- tread lightly.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

USD/CAD Trader Sentiment

USD/CAD Trader Sentiment
  • A summary of IG Client Sentiment shows traders are net-long USD/CAD - the ratio stands at +1.56 (60.9% of traders are long) – bearish reading
  • Traders have remained net-long since September 14th; price has moved 1.4% lower since then
  • Long positions are32.1% higher than yesterday and 14.5% lower from last week
  • Short positions are 26.8% higher than yesterday and 20.7% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall. However traders are more net-long than yesterday but less net-long from last week and the combination of current positioning and recent changes gives us a further mixed USD/CAD trading bias from a sentiment standpoint.

See how shifts in USD/CAD retail positioning are impacting trend- Learn more about sentiment!

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Relevant USD/CAD Economic Data Releases

USD/CAD Economic Calendar

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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex or contact him at mboutros@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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