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USD/CAD Bearish Formation Remains in Play Ahead of Fed Testimony

USD/CAD Bearish Formation Remains in Play Ahead of Fed Testimony

David Song, Strategist

Talking Points:

- USD/CAD Pares Losses on Slowing Canada Inflation; Bearish Formation Remains in Focus.

- USDOLLAR Outlook Mired by Dovish Fed Rhetoric, Mixed U.S. Data.

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USD/CAD Daily Chart

Chart - Created by David Song

Beyond the limited market reaction to Canada’s Consumer Price Index (CPI), USD/CAD stands at risk of giving back the rebound from the May low (1.2460) as it largely preserves the downward trending channel carried over from the previous month, with the Relative Strength Index (RSI) retaining the bearish formation from earlier this year.

  • Despite the weaker-than-expect headline reading for Canada CPI, the stickiness in the core rate of inflation may encourage the Bank of Canada (BoC) to gradually move away from its easing cycle following the ‘insurance’ rate-cuts in 2015, while Governor Stephen Poloz turns increasingly upbeat towards the real economy.
  • Failure to test the monthly high (1.3143) may highlight another lower-high in USD/CAD, with the failed attempt to close back above 1.2980 (61.8% retracement) to 1.2990 (23.6% retracement) raising the risk for a move back towards the bottom of the channel around 1.2620 (50% retracement) to 1.2650 (50% retracement).
  • The DailyFX Speculative Sentiment Index (SSI) shows a bit of back and forth in retail sentiment, with the FX crowd flipping back net-long USD/CAD going into the weekend.
  • The ratio currently sits at +1.02 as 51% of traders are long, with long positions 25.5% lower from the previous week as open interest stands 5.2% below the monthly average.

Why and how do we use the SSI in trading? View our video and download the free indicator here

USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
US Dollar Index11841.9411874.4611831.97-0.2980.89%
USDOLLAR Daily Chart

Chart - Created by David Song

  • The USDOLLAR stands at risk for a further decline amid the recent series of lower highs & lows; may see the bearish trend from earlier this reassert itself following the failed attempt to test the monthly opening range.
  • The ongoing batch of mixed data prints coming out of the U.S. economy may encourage the Federal Open Market Committee (FOMC) to further delay its normalization cycle as St. Louis Fed President James Bullard, a 2016 voting-member, sees a more shallow path for interest rates and sees scope for one rate-hike over the policy horizon; will keep close eye on the news wires next week as Fed Chair Janet Yellen is scheduled to deliver the semi-annual Humphrey-Hawkins testimony in front of Congress.
  • Still waiting for a break/close below 11,836 (61.8% retracement) to 11,843 (38.2% retracement) to favor a move back towards 11,745 (50% retracement) to 11,759 (23.6% retracement).
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Read More:

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US DOLLAR Technical Analysis: A Wild Open To June Is Set To Get Wilder

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NZD/USD: RBNZ Breakout Approaching Initial Resistance Targets

--- Written by David Song, Currency Analyst

To contact David, e-mail Follow me on Twitter at @DavidJSong.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.