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USD/CAD Eyes Top of Near-Term Range Following Dovish BoC

USD/CAD Eyes Top of Near-Term Range Following Dovish BoC

David Song,

Talking Points:

- USD/CAD Eyes Top of Near-Term Range Following Dovish BoC.

- USDOLLAR Outlook Mired by Waning Expectations for September Fed Rate-Hike.

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USD/CAD Daily Chart

Chart - Created by David Song

  • Despite the recent series of lower highs & lows, USD/CAD may continue to consolidate within the triangle/wedge formation from earlier this year as the Bank of Canada (BoC) adopts a dovish tone and warns ‘risks to the profile for inflation have tilted somewhat to the downside since July.’
  • Even though Canada’s Unemployment Rate is expected to uptick to an annualized 7.0% from 6.9% in July, a 14.0K rebound in employment accompanied by an expansion in the labor force participation may boost the appeal of the Canadian dollar as it highlights an improved outlook for growth and inflation; may encourage Governor Stephen Poloz and Co. to retain the current policy throughout 2016 as the central bank cautions ‘household imbalances remain elevated and continue to rise.’
  • Failure to test the August low (1.2763) may spark a larger rebound in USD/CAD, with a break/close above the Fibonacci overlap around 1.2930 (61.8% expansion) to 1.2990 (23.6% retracement) raising the risk for a move back towards the top of the near-term range.
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd has flipped net-long USD/CAD on September 2, with the ratio hitting a near-term extreme during the previous month as it climbed to +1.88.
  • The ratio currently sits at +1.66 as 62% of traders are long, with long positions 28.5% higher from the previous week, while open interest stands 8.2% above 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 Index11890.5311892.2111858.130.1863.55%
USDOLLAR Daily Chart

Chart - Created by David Song

  • The near-term series of lower highs & lows casts a bearish outlook for the USDOLLAR, with the greenback at risk of facing additional headwinds ahead of the Federal Open Market Committee (FOMC) interest rate decision on September 21 as the mixed data prints coming out of the U.S. economy dampens bets for an imminent rate-hike.
  • The Fed’s Beige Book may spark a limited market reaction as Fed Funds Futures continue to highlight a less than 20% probability for a September Fed rate-hike, but the region banks may largely echo the upbeat tone held by central bank officials especially as the economy approaches ‘full-employment.’
  • Need a break/close below the Fibonacci overlap around 11,822 (23.6% retracement) to 11,843 (38.2% retracement) to open up the next downside target 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 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.