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Canadian Dollar Price Outlook: Loonie Gains Slam USD/CAD into Support

Canadian Dollar Price Outlook: Loonie Gains Slam USD/CAD into Support

Michael Boutros, Strategist

The Canadian Dollar is up more than 2.7% against the US Dollar since the late-May high in USD/CAD with price now testing near-term downtrend support. These are the updated targets and invalidation levels that matter on the USD/CAD charts into the close of the month. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.

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USD/CAD Price Chart - Loonie Daily

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

Technical Outlook: In my latest Canadian Dollar Price Outlook we noted that the USD/CAD recovery was approaching key topside resistance objectives at the, “1.3435/37 pivot zone with trendline confluence just higher around ~1.3460s – we’re looking for possible exhaustion off one of these two zones.” Price registered a high at 1.3432 before posting an outside-day reversal lower on the back of the FOMC interest rate decision.

The decline has now taken out the monthly opening-range lows with price now responding to confluence support at 1.3175 – a region defined by the lower median-line parallel and the 78.6% retracement of the late-January advance. A daily close below this threshold is needed to mark resumption targeting more significant support at the yearly low-day close / 100% extension at 1.3105/23 – look for a bigger reaction there IF reached.

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USD/CAD Price Chart - Loonie 120min

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 a descending pitchfork formation extending off the May highs with USD/CAD in consolidation just above the lower parallel. Initial resistance stands at 1.3238 backed by 1.3258 with bearish invalidation at the median-line (currently ~1.3280s).

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Bottom line: The broader focus remains weighted to the downside in USD/CAD on the back of last week’s reversal – that said, the decline is now testing initial downtrend support. A good place to reduce short-exposure / lower protective stops. I’ll favor fading strength while below the median-line targeting a test of the 1.3105/23 support zone. Review my latest 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 Price Chart - Loonie Outlook
  • A summary of IG Client Sentiment shows traders are net-short USD/CAD - the ratio stands at -1.06 (48.6% of traders are long) – neutral reading
  • Long positions are 14.9% higher than yesterday and 28.8% higher from last week
  • Short positions are 18.5% higher than yesterday and 24.0% 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 and last week, and the combination of current positioning and recent changes gives us a 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 US / Canada Data Releases

US / Canada Key Data Releases - Ecomomic Calendar

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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