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USD/CAD Technical Analysis: More Than Oil Is Weakening CAD

USD/CAD Technical Analysis: More Than Oil Is Weakening CAD

Tyler Yell, CMT, Currency Strategist

Talking Points:

  • USD/CAD Technical Strategy: Possible leading diagonal could mean aggressive upside still viable
  • Oil is joining yields and an anticipated dovish BoC to weaken CAD further, Employment data on Friday
  • Ichimoku keeps focus higher as price and momentum remain above the cloud

Quick Fundamental Take:

The Canadian Dollar continues to weaken for a platitude of reasons on the fundamental front, which should give traders caution before buying the battered currency. The price of Oil has had a negative effect since the OPEC agreement to cut production came into doubt. However, there is more to the value of the Canadian Dollar than Oil.

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On Friday, the Canadian economy will see whether the employment steadies from recent readings volatility. Data showed on Tuesday that Real-Estate agent activity fell 3.2%, the most since January, which shows weakness in one of the most supportive sectors of the Canadian economy, housing.

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The weakness in these key metrics of the economy have seen the Canadian dollar weaken and has seen the difference in the 2yr US/CA debt yields close to their highest in 3-months at -.30bps. Many are now watching whether or not the Bank of Canada will begin to discuss a rate cut in the coming months, which could provide a further boost for USD/CAD bulls.

Technical Focus:

A Leading Diagonal May Have Finished Providing Evidence For An Aggressive Impulsive Advance

Chart Created by Tyler Yell, CMT

The chart above of USD/CAD looks crowded because, for months, the price action has been confined in the lower 1.30s. A key point about the choppy price action is that it has developed with higherhighs and higherlows, which is indicative of an uptrend that should not be fought. For traders that are fond of the Ichimoku cloud, the H4 chart has done a good job of keeping you on right side of impulsive moves.

If price remains above the H4 Ichimoku Cloud, the path of least resistance remains higher, and we could be paving the way for an aggressive rise as we move from a leading diagonal to an impulsive wave ‘iii’ of ‘C’ in Elliott Wave terms. The leading diagonal view is encouraged by the recent break above the pattern high at 1.3313, and the three-wave move toward a 50% retracement of the diagonal down to 1.3005.

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The zone of support worth watching if USD/CAD continues to stumble alongside the DXY would be between 1.33/32. Within that zone is the base of the recent drop at 1.32788 that preceded seven-month highs. If the price can hold above that corrective zone, we could be building up for a strong move higher.

Having a Hard Time Trading USD/CAD? This May Be Why

The slope of the rise from 1.3005 on Oct 19 to 1.3432 on Oct 28 likely favors a further advance that could continue on Canadian Dollar underperformance or USD strength. The next upside target is the 50% retracement of the January-May range at 1.3575. If 1.3575 breaks, we’ll be on the watch of the 61.8% retracement of the same range at 1.3838.

Key Short-Term Levels as of Tuesday, November 01, 2016


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