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Canadian Dollar Price Outlook: USD/CAD Approaching Range Extremes

Canadian Dollar Price Outlook: USD/CAD Approaching Range Extremes

Michael Boutros, Strategist

The Canadian Dollar down more than 0.75% against the US Dollar since the start of the week with USD/CAD testing the upper-bounds of a multi-month range in price heading into major US event risk tomorrow. It’s the moment of truth for Loonie. These are the updated targets and invalidation levels that matter on the USD/CAD weekly chart into the open of Q4.

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Canadian Dollar Price Chart – USD/CAD Weekly

Canadian Dollar Price Chart - USD/CAD Weekly - Loonie Trade Outlook - US Dollar vs Canadian Dollar Technical Forecast

Chart Prepared by Michael Boutros, Technical Strategist; DXY on Tradingview

Notes: In my last Canadian Dollar Weekly Price Outlook we noted that the, “broader focus remains on a break of the 1.3155- 1.3355 zone for guidance on our near-term directional bias.” Two week later, and Loonie has continued to hold this range with USD/CAD now approaching the upper bounds of this critical zone. Key resistance stands at 1.3355/70 – a region defined by the 2019 high-week close and the 61.% retracement of the May decline. Note that the 75% parallel also converges on this region this week and further highlights its technical significance.

Price is already poised to mark an outside-weekly reversal this week with US Non-Farm Payrolls on tap tomorrow morning. A topside breach / close above would expose the highlighted confluence zone around the March highs near 1.3467 – look for a bigger reaction there IF reached. Interim support rests at the median-line with a close below 1.3155 needed to mark resumption of the broader downtrend targeting the yearly low-week close at 1.3059.

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 the upper-bounds of a multi-month range in price and leaves the immediate advance vulnerable here- we’re looking for a reaction. From a trading standpoint, look to reduce long-exposure / raise protective stops on a stretch towards 1.3355/70 – watch the weekly close in relation to this threshold with a close above needed to keep the long-bias viable. Failure here could see a more pronounced correction lower. I’ll publish an updated Canadian Dollar Trade Outlook once we get further clarity on in near-term price action.

Canadian Dollar Trader Sentiment – USD/CAD Price Chart

Canadian Dollar Trader Outlook - USD/CAD Price Chart - US Dollar vs Canadian Dollar Trade Outlook - Loonie Technical Forecast
  • A summary of IG Client Sentiment shows traders are net-short USD/CAD- the ratio stands at +-2.88 (25.8% of traders are long) –bullishreading
  • Traders have remained net-short since September 12th; price has moved 1.1% higher since then
  • Long positions are18.5% lower than yesterday and 12.8% lower from last week
  • Short positions are36.9% higher than yesterday and 14.5% higher 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 Loonie retail positioning are impacting trend- Learn more about sentiment!

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Previous Weekly Technical Charts

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--- 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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