Talking Points:
- USD/CAD Retail Sentiment Approaches Extreme Ahead of Canada Employment Report.
- USDOLLAR Rebound Vulnerable to Waning Consumer Confidence, Subdued Inflation Expectations.
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Chart - Created by David Song
- USD/CAD may continue to give back the rebound from the May low (1.2460) as the pair fails to retain the range-bound price action carried over from the previous month and appears to be carving a downward trending channel; will look for opportunities to sell-bounces in the dollar-loonie amid the recent series of lower highs & lows in the exchange rate.
- Even though the Bank of Canada (BoC) retains a cautious outlook and warns about the rise in household debt, may see the central bank largely endorse a wait-and-see approach throughout 2016 as Governor Stephen Poloz and Co. appear to be gradually moving away from its easing cycle.
- May see a near-term rebound in USD/CAD as it appears to be catching support around 1.2620 (78.6% retracement) to 1.2650 (50% retracement), but a meaningful pickup in Canada Employment may open up the next downside target coming in around 1.2510 (78.6% retracement) to 1.2550 (38.2% expansion).
- The DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd remains net-long USD/CAD since May 25, with the ratio hitting an extreme reading in late-April at it climbed above the +2.00 mark.
- The ratio currently sits at +1.62 as 62% of traders are long, with long positions 23.5% higher from the previous week, while open interest stands 3.0% above the monthly average.
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USDOLLAR(Ticker: USDollar):
| Index | Last | High | Low | Daily Change (%) | Daily Range (% of ATR) |
|---|---|---|---|---|---|
| US Dollar Index | 11842.69 | 11847.58 | 11802.52 | 0.19 | 102.78% |
Chart - Created by David Song
- The near-term rebound in the USDOLLAR may be short-lived as the greenback struggles to get back above the Fibonacci overlap around 11,836 (61.8% retracement) to 11,843 (38.2% retracement), while Fed Funds Futures continue to highlight a less than 10% probability for a June Fed rate-hike amid the mixed data prints coming out of the economy.
- A downtick in the preliminary U. of Michigan Confidence survey may further dampen the appeal of the greenback as it undermines Fed expectations for a ‘consumer-led’ recovery in 2016 and may encourage the Federal Open Market Committee (FOMC) to further delay the normalization cycle as 12-month inflation expectations stand at the lowest reading since September 2010.
- Failure to close back above 11,836 (61.8% retracement) to 11,843 (38.2% retracement) may open up the next downside target coming in around 11,745 (50% retracement) to 11,759 (23.6% retracement).
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--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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