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Canadian Dollar Price Outlook: Loonie Breakout Tests USD/CAD Support

Canadian Dollar Price Outlook: Loonie Breakout Tests USD/CAD Support

Michael Boutros, Strategist

The Canadian Dollar has rallied to multi-month highs against the US Dollar with price now testing a key support pivot near the March swing lows. These are the updated targets and invalidation levels that matter on the USD/CAD charts. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.

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USD/CAD Daily Price Chart

USD/CAD Price Chart - US Dollar vs Candian Dollar Daily - Loonie Outlook

Technical Outlook: In my latest Canadian Dollar Price Outlook we noted that the near-term risk was for a larger setback in USD/CAD with a break lower targeting the, “1.3435/37 support pivot- look for a bigger reaction there if reached.” A break and retest of this level last week as charged a 2.2% drop with price testing confluence support at 1.3258 into the start of the week. A gap lower into the Sunday open has already filled with price trading just above Fibonacci support.

Resistance stands at 1.3357 with broader bearish invalidation now back at the 1.3435/37 pivot zone. A break lower from here keeps the focus on more significant support at the 61.8% extension / 78.6% retracement at 1.3175/98.

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USD/CAD 120min Price Chart

USD/CAD Price Chart - US Dollar vs Canadian Dollar 120min - Loonie Outlook

Notes: A closer look at price action shows Loonie trading within the confines of an descending pitchfork formation extending off the May lows with the upper parallel further highlighting the 6657 resistance zone. The pullback is now testing initial support here at 6620 – a break lower would exposes 6596 backed by 6574 – both areas of interest for possible exhaustion. Bullish invalidation rests with the lower parallel / 61.8% retracement at 6552. A topside breach would keep the focus on subsequent resistance objectives at 6684 and the yearly open / 50% retracement at 6705/12 – look for a bigger reaction there IF reached.

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Bottom line: The USD/CAD breakdown has price testing the first major support pivot and while the broader outlook remains weighted to the downside, we could see some price exhaustion here. From a trading standpoint, a good spot to reduce short-exposure / lower protective stops. Look for price exhaustion into the upper parallels for possible entries with a break of the lows targeting more significant support into the 1.32-handle. Review my last Canadian Dollar Weekly Price Outlook for a longer-term technical picture on USD/CAD.

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 - US Dollar vs Canadian Dollar Positioning - Loonie Price Chart
  • A summary of IG Client Sentiment shows traders are net-long USD/CAD - the ratio stands at +1.23 (55.1% of traders are long) – weak bearish reading
  • The percentage of traders net-long is now its highest since February 13th
  • Long positions are 19.6% higher than yesterday and 55.1% higher from last week
  • Short positions are 2.9% lower than yesterday and 45.0% lower 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. Traders are further net-long than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger USD/CAD-bearish 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 US / Canada Data Releases

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

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- Written by Michael Boutros, 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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