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USD/CAD Capped by Channel Resistance; 1.3300 Hurdle in Focus

USD/CAD Capped by Channel Resistance; 1.3300 Hurdle in Focus

2016-11-08 17:20:00
David Song, Strategist
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Talking Points:

- USD/CAD at Risk for Larger Pullback as Outlook Remains Clouded With Mixed Signals.

- Japanese Yen Weakness Persist With All Eyes on U.S. Presidential Election.

DailyFX

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/CAD

1.3337

1.3391

1.3325

27

66

USD/CAD Daily

USD/CAD Daily Chart

Chart - Created Using Trading View

  • Longer-term outlook remains constructive as USD/CAD preserves the upward trending channel from earlier this year, but the pair stands at risk for a near-term pullback following the failed attempt to break above 1.3460 (61.8% retracement), while the Relative Strength Index (RSI) remains capped by the bearish formation carried over from the summer months; will keep a close eye on the former resistance-zone around 1.3300 (61.8% expansion) to 1.3310 (38.2% retracement) for support.
  • With the Federal Open Market Committee (FOMC) preparing U.S. households and businesses for a December rate-hike, the cautious tone struck by the Bank of Canada (BoC) may continue to favor a bullish outlook going into the year ahead amid the deviating paths for monetary policy; however, the FOMC may continue to endorse a ‘gradual’ path in normalizing monetary policy as Chicago Fed President Charles Evans, a 2017-voting member, remains concerned about undershooting the 2% target for inflation.
  • Will keep a close eye on the near-term range, with a break/close below 1.3300 (61.8% expansion) to 1.3310 (38.2% retracement) raising the risk for a larger pullback, with then next area of interest coming in around 1.32230 (23.6% retracement) followed by 1.3080 (38.2% retracement).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

105.00

105.05

104.30

54

75

USD/JPY Daily

USD/JPY Daily Chart

Chart - Created Using Trading View

  • The Japanese Yen continues to lose ground against its U.S. counterparts as market participants eagerly wait for the results of the U.S. Presidential election; the near-term series of higher highs & lows may continue to take shape over the near-term should risk sentiment continue to improvement, with the 105.40 (50% retracement) hurdle in focus.
  • The Bank of Japan (BoJ) may keep the door open to further embark on its easing-cycle especially as the central bank pushes out its forecast of achieving the 2% target for inflation to fiscal-year 2018, but a further depreciation in the local currency may encourage Governor Haruhiko Kuroda and Co. to carry its wait-and-see approach into 2017 as it helps to anchor inflation-expectations.
  • The bullish RSI formation continues to cast a mixed outlook for USD/JPY, with a closing price above the 105.40 (50% retracement) hurdle raising the risk for a material test of the downward trend from earlier this year, with the next topside region of interest coming in around 106.60 (38.2% retracement).
DailyFX SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long USD/JPY since July 21, with sentiment hitting a 2016-extreme reading of +6.04 in September, while traders have been net-short USD/CAD since October 20.
  • USD/JPY SSI sits at +1.57 as 61% of traders are long, with short positions 18.4% lower from the previous week as open interest stands 12.0% below the monthly average.
  • USD/CAD SSI sits at -1.84 as 35% of traders are long, with short positions 16.1% lower from the previous week, while open interest stands 4.9% below the monthly average.
  • Market participation remains weak and appears to be waning as the focus shifts to the outcome of the U.S. Presidential election.

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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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