USD/CAD Technical Analysis: CAD Bounces Ahead of Friday’s Inflation Report
- USD/CAD Technical Strategy: Upside Remains Favored Despite Bounce Off 50% Retracement
- Options Market (1M RR) Aggressively Protecting From Further CAD Weakness
- Canadian Dollar Has Asymmetric Risk with Trump’s Reflationary Views
Quick Fundamental Take:
The Canadian Dollar had a spat of good news on Tuesday as Vancouver Suburbs (one of the hottest housing markets in the world) brought about the fastestCanadian Homes Sales in six months per Bloomberg. At the same time that Canada saw positive domestic data, the Oil market has bounced ~7% on news that OPEC will be making a concerted diplomatic push to help assure an agreement to cut production is achieved.
The final negotiations for the potential OPEC accord in Vienna are on November 28. Given the recent production numbers from Iran, which is producing record output and rhetoric from other member countries that are seeking an exemption, we could see a partial cut or freeze. Either way, it appears to be a fraction of what the market thought they were getting after the Algiers meeting concluded. The price of Oil will look to the post-election high of $45.89/bbl as resistance. An inability to break above this zone would favor further USD strength and Oil weakness that would also likely be a drag on the Canadian Dollar due to potential trade risks arising from President-elect Donald Trump in the U.S pre-inauguration agenda and possible trade re-negotiations.
One last note is from the option premiums being placed on USD/CAD Calls against USD/CAD Puts. When there is a Call: Put Ratio that is positive, it shows options traders (speculators and institutions) are more concerned and will to pay more to protect against the upside (CAD weakness). When looking at 1M risk reversals across G10FX + Crosses, USDCAD has the highest premium being paid on Calls relative to Puts, which helps show that the bias on USD/CAD likely remains higher despite Tuesday’s pullback.
D1 USDCAD: The Uptrend Is Advancing Ever-Increasingly
Chart Created by Tyler Yell, CMT
The Canadian Dollar bounced on Tuesday morning off of significant resistance that we’ve been targeting. Namely, the 50% Fibonacci Retracement of the January-May range at 1.3575. The weakness displayed in the Candian Dollar has aligned with the trend shift that we’ve been focusing on since the price broke above the Ichimoku Cloud and was followed by the momentum line. We continued to favor upside based on both the charts and fundamental story developing this week.
As the price remains above the 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.
The recent turnaround off of 1.32647 provides a base that we can look to as a foundation for advancing the uptrend. As long as the price stays above this level, we would expect upside pressure to grow. The 1.32647 level is highlighted on the chart, and price staying above this level will cause us to treat Tuesday’s turnaround as a counter-trend move that is anticipated to reverse higher favoring further USD strength.
In addition to Elliott Wave and Ichimoku, we have added a Modified Schiff Pitchfork applied to the chart above. The Modified pitchfork originates the median line from the 50% retracement of price and time of the point of X and A. The Modified Schiff Pitchfork places a helpful frame of price action. USD/CAD did bounce off the upper parallel line on Tuesday, which could provide a trend-based resistance if we continue to move higher without a further breakout catalyst. However, a break above the 50% retracement of the January-May range at 1.3757 would be an early indication the strong breakout resuming.
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In addition to the short-term volatility, we’ll continue to favor buying support (not a trade recommendation), as the potential for a strong move higher continues to build in USD/CAD.
The next upside target is the 50% retracement of the January-May range at 1.3575. 1.35572 is also the 100% Fibonacci Expansion that aligns with an equal wave off the August low that would match the May to July rise. If 1.3575 breaks, we’ll be on the watch of the 61.8% retracement of the same range at 1.3838.
A few of the support levels that would need to break to change the tune from Bullish to Neutral is 1.3312, the 38.2% Fibonacci Retracement of the Jan-May range followed by Today’s low of 1.3264 that was mentioned above.
Key Short-Term Levels as of Tuesday, November 15, 2016
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