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Title: USD/CAD Technical Analysis: CAD Building Momentum Into LT Support

Title: USD/CAD Technical Analysis: CAD Building Momentum Into LT Support

2016-12-09 17:05:00
Tyler Yell, CMT, Currency Strategist
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Talking Points:

  • USD/CAD Technical Strategy: Chart Support Eroding on Canadian Dollar Momentum
  • Bank of Canada disappoints CAD bears as inflation signs help lift CAD
  • USD/CAD pushing into pivotal 1.30/31 zone

Quick Fundamental Take: USD/CAD has had one of the most impressive runs that is not aligning with broader G10FX post-election. By looking at the Dollar Index (DXY), you can see an aggressive rally that has provided a little fodder for DXY bears. Much of the rise can be attributed fundamentally to the widening of sovereign yield spreads against other major counterparts like Japan (who has pegged the 10Y JGBP to 0%) and the German Bunds, which took a sharp move lower after the ECB pledged to extend QE to December 2017 on Thursday.

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

Despite the fundamental backing for USD strength, which is shown in the DXY, the Canadian Dollar has continued to gain against the greenback since November with a ~450 pip range as of Friday morning. Much of the run as to do with the price of Oil and the unwillingness of the Bank of Canada to loosen monetary policy further to extend a hand to exporters.

Access Our Free Q4 Dollar Outlook As The US Dollar Faces An Unorthodox Presidential Election

Technical Focus:

D1 USD/USD: Momentum Into LT Support (100-DMA, Ichimoku Cloud, 7-Month Trendline

Title: USD/CAD Technical Analysis: CAD Building Momentum Into LT Support

Chart Created by Tyler Yell, CMT

The Canadian Dollar has strengthened by ~3.2% over the last month after touching the 50% retracement of the 2016 range at 1.3575. For the time being, the burden of proof is on USD/CAD Bulls as the price sits below shorter-term resistance like the 50-DMA and H4 Ichimoku Cloud.

However, we’re also sitting above longer-term resistance like the 100-EMA (1.3190), Daily Ichimoku Cloud (1.3230), and a trendline drawn off the May and August lows.

The current consolidation has shown little signs of reversing, and we will favor further short-term CAD strength against the USD and other weaker currencies as USD/CAD remains below weekly opening range high of 1.3357 and November 22 low of 1.3378.

The longer-term chart shows a polarity zone in effect between 1.3176-1.29 where a majority of the price action on the post-May rebound has taken place. If the price continues to work through this zone of support despite US Dollar strength vs. other G10 pairs, we could be working on more pronounced Canadian Dollar strength that will be easily recognized against weaker currencies like the JPY, EUR, and possibly the GBP.

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For now, only a breakout above 1.3357/78 would open up Bullish targets of 1.3537 followed by the November 14 high near the 50% retracement of the January-May range at 1.3589. If 1.3589 breaks, we’ll be on the watch of the 61.8% retracement of the same range at 1.3838. Until then, the Canadian Dollar appears to be a stalwart that isn’t worth fighting, but following.

Key Short-Term Levels as of Tuesday, December 9, 2016

Title: USD/CAD Technical Analysis: CAD Building Momentum Into LT Support

T.Y.

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