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Canadian Dollar Technical Pattern Forming, Hints at a Bullish USD/CAD Continuation

Canadian Dollar Technical Pattern Forming, Hints at a Bullish USD/CAD Continuation

Nick Cawley, Strategist

Canadian Dollar Price (USD/CAD), News, and Analysis:

  • USD/CAD consolidating after the recent major turnaround.
  • Client sentiment data is mixed.

USD/CAD may be settling in for a short-term consolidation period before pushing higher if one technical pattern currently being formed plays out. The ‘cup and handle’ pattern is normally associated with a prior uptrend and so this formation may not play out as traditionally expected but should be monitored in any case. With the cup formation in place, if this pattern is to continue, then a short-term period of sideways to slightly lower consolidation will need to occur before the pair break higher again. Not a perfect set-up but one worth watching.

Trading With The Cup And Handle Pattern

Monday’s US dollar move lower negated most of Friday’s Bullard-inspired rally and USD/CAD may now pause until further clarity is given by a swathe of Fed speakers over the rest of this week. Later today, Fed chair Jerome Powell testifies to Congress (18:00 GMT) and traders should look for any further commentary on interest rate and inflation expectations after last week’s FOMC meeting suggested two rate hikes in 2023.

The current, lofty, level of oil is also starting to weigh on USD/CAD and while this may also see a period of sideways price action after such a sharp rally, higher oil prices are expected in the future as global economies continue to re-open and expand.

USD/CAD is currently sitting on short-term support around 1.2350/65 and further consolidation on either side of this level will help to push the downward sloping CCI indicator out of overbought territory. The 20-/50-day sma crossover suggests short-term positive sentiment and initial resistance is expected between 1.2474 and 1.2489.

USD/CAD Daily Price Chart (October 2020 - June 22, 2021)

Canadian Dollar Technical Pattern Forming, Hints at a Bullish USD/CAD Continuation

IG Retail trader data show69.05% of traders are net-long with the ratio of traders long to short at 2.23 to 1.The number of traders net-long is 15.67% higher than yesterday and 33.72% lower from last week, while the number of traders net-short is 8.33% lower than yesterday and 18.44% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall.Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed USD/CAD trading bias.

What is your view on USD/CAD – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

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