USD/CAD Hits Fresh May Low, RSI Flashes Bearish Signal on Upbeat BoC

2017-05-24 16:55:00

Talking Points:

- USD/CAD Slips to Fresh Monthly Low Following Upbeat BoC; RSI Flashes Bearish Signal.

- USD/JPY Extends Rebound, Eyes Topside Targets as Risk Sentiment Recovers.

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
USD/CAD	1.3453	1.3540	1.3431	61	109

The Canadian dollar outperforms its major counterparts following the Bank of Canada (BoC) interest rate decision, with USD/CAD slipping to a fresh monthly low of 1.3430 as Governor Stephen Poloz and Co. adopt an improved outlook and note that ‘the Canadian economy’s adjustment to lower oil prices is largely complete and recent economic data have been encouraging.’

Keep in mind the BoC continued to endorse a wait-and-see approach for monetary policy, with officials arguing ‘the current degree of monetary stimulus is appropriate at present,’ but the central bank may slowly change its tune over the coming months as ‘the output gap is projected to close in the first half of 2018, a bit sooner than the Bank anticipated in January.’

USD/CAD Daily

Chart - Created Using Trading View

USD/CAD stands at risk for a further decline as it carves an outside-day (engulfing) following the BoC meeting; the rebound from the April low (1.3223) may continue to unravel as the Relative Strength Index (RSI) threatens the upward trend from late-2016 and flashes a bearish signal.
In turn, downside targets are in focus, with a break/close below the former-resistance zone around 1.3440 (38.2% expansion) to 1.3460 (61.8% retracement) opening up the next region of interest around 1.3300 (38.2% expansion) to 1.3360 (23.6% expansion).

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Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
USD/JPY	112.07	112.13	111.70	29	43

USD/JPY extends the rebound from the May low (110.24) amid the pickup in market sentiment, and the pair may stage a larger advance over the coming days as it breaks the series of lower highs & lows from earlier this month.

Broader outlook for the dollar-yen exchange rate remains tilted to the upside especially as the Federal Open Market Committee (FOMC) appears to be on course to deliver a 25bp rate-hike in June, while the Bank of Japan (BoJ) continues to embark on its Quantitative/Qualitative Easing (QQE) program with Yield-Curve Control. As a result, USD/JPY may continue to track changes in risk appetite as market participants utilize the Yen as a funding-currency, but the BoJ may find it increasingly difficult to further embark on its easing-cycle as former Fed Chair Ben Bernanke warns ‘there are relatively few options available’ for Governor Haruhiko Kuroda and Co. With that said, the BoJ’s may boost its effort to weaken the local currency as the central bank struggles to achieve the 2% target for inflation.

USD/JPY Daily

Chart - Created Using Trading View

Topside targets are back in focus as USD/JPY continues to operate above the 200-Day SMA (109.76), which largely lines up with the Fibonacci overlap around 109.40 (50% retracement) to 110.00 (78.6% expansion), and the pair may stage a larger rebound going into the end of the month as it starts to carve a bullish series.
Next region of interest comes in around 112.40 (61.8% retracement) to 112.80 (38.2% expansion), but the dollar-yen exchange rate may face range-bound conditions ahead of the FOMC interest rate decision on June 14 amid the string of failed attempts to break/close above the 114.30 (23.6% retracement) hurdle.

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Retail trader data shows 45.1% of traders are net-long USD/CAD with the ratio of traders short to long at 1.22 to 1. In fact, traders have remained net-short since April 18 when USD/CAD traded near 1.33315; price has moved 0.9% higher since then. The number of traders net-long is 8.6% higher than yesterday and 9.4% higher from last week, while the number of traders net-short is 22.7% lower than yesterday and 36.1% lower from last week.
Retail trader data shows 63.3% of traders are net-long USD/JPY with the ratio of traders long to short at 1.72 to 1. In fact, traders have remained net-long since May 17 when USD/JPY traded near 110.938; price has moved 1.0% higher since then. The number of traders net-long is 8.2% higher than yesterday and 24.7% higher from last week, while the number of traders net-short is 15.9% lower than yesterday and 27.2% lower from last week.

For More Information on Retail Sentiment, Check Out the New Gauge Developed by DailyFX Based on Trader Positioning