USD/CAD FX Sentiment Approaches Extreme Ahead of Canada Employment

Name: USD/CAD FX Sentiment Approaches Extreme Ahead of Canada Employment
Uploaded: 2016-06-09
Description: The retail FX crowd remains net-long USD/CAD ahead of Canada’s Employment report, which is expected to show a minor rebound in job-growth.

2016-06-09 17:25:00

David Song, Strategist

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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USD/CAD

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).