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Canadian Dollar Weekly Outlook: USD/CAD Breakdown Targets Key Support

Canadian Dollar Weekly Outlook: USD/CAD Breakdown Targets Key Support

Michael Boutros, Strategist

In this series we scale-back and look at the broader technical picture to gain a bit more perspective on where we are in trend. The Canadian Dollar is the best performer against the US Dollar year-to-date with an advance of more than 4.3%. The move takes USD/CAD towards a critical weekly support confluence and the focus is on a reaction at this zone heading into the open of February trade. Here are the key targets & invalidation levels that matter on the USD/USD weekly chart.

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USD/CAD Weekly Price Chart

USD/CAD Price Chart - US Dollar vs Canadian Dollar Weekly

Notes: In last month’s USD/CAD Weekly Technical Outlook our ‘bottom line’ noted that price had, “broken below medium-term uptrend support after rebounding off critical resistance last week and leaves the risk for further losses.” The breakdown has now taken price below our final target at 1.3113/19 with a more significant weekly support barrier seen just lower at 1.3037/52- a region defined by the 52-week & 200-week moving averages and the 38.2% retracement of the 2017 advance. Note that a basic trendline extending off the 2018 low also converges on this region and further highlights its technical significance.

A break / close below this threshold is needed to fuel the next leg in USD/CAD with such a scenario targeting the October low-week reversal close at 1.2939 and the October swig low at 1.2782. Initial resistance now stands at the 1.32-handle with bearish invalidation now lowered to the outside high-week reversal close at 1.3370.

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

Bottom line: USD/CAD is approaching a critical weekly support confluence at 1.3037/57 and we’re looking for a reaction in price on a drop into this zone early in the month. From a trading standpoint, a good area to reduce short-exposure / lower protective stops. Ultimately, we’ll be looking for exhaustion on a rebound in price to offer more favorable short-entries targeting a break of this key support barrier. Review my latest USD/CAD Price Outlook fora closer look at the near-term trading levels.

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USD/CAD Trader Sentiment

USD/CAD Trader Sentiment
  • A summary of IG Client Sentiment shows traders are net-short USD/CAD - the ratio stands at -1.34 (42.8% of traders are long) – bullish reading
  • Traders have remained net-short since January 17th; price has moved 1.3% lower since then
  • Long positions are 3.8% lower than yesterday and 15.7% lower from last week
  • Short positions are 1.1% lower than yesterday and 8.8% lower from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/CAD prices may continue to rise. Traders are further net-short than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger USD/CAD-bullish contrarian 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 Data Releases

USD/CAD - US Canada Economic Calendar

Economic Calendar - latest economic developments and upcoming event risk. Learn more about how we Trade the News in our Free Guide!

Previous Weekly Technical Charts

Learn how to Trade with Confidence in our Free Trading Guide

--- Written by Michael Boutros, Technical Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

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

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