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Bank of Canada Takes USD/CAD Toward Trend Support

Bank of Canada Takes USD/CAD Toward Trend Support

Tyler Yell, CMT, Currency Strategist

Will Oil Continue To Support CAD in 2Q? See our forecast to find out what’s driving market trends!

Talking Points:

  • USD/CAD Technical Strategy: Favoring CAD Strength Continuing
  • US Yields & Crude Oil helping to guide USD/CAD lower
  • Break and Close < 1.3265 Opens Door For 1.3000 Retest

The Canadian Dollar broke higher taking USD/CAD down toward trend support. The move was triggered by an upbeat Bank of Canada Rate Announcement that saw rates remain at 0.5%, but with the Bank of Canada warming up to the idea of sustainable growth in Canada. USD/CAD has become a hot topic as the USD is driven much by US Yields that are sitting at 2017 lows in some maturities and the CAD is driven by Oil, which is recently having its best string of Bullish sessions in years.

Near-term support on USD/CAD on a closing basis is now in the 1.3265 area (March Low), with a daily close below that opening the door for a challenge of 1.3186, a 100% Fibonacci Extension from the Mar 9th high. Alternatively, a turn back above the April Opening Range high (1.3455) paves the way for a choppy continuation in the Bullish Channel toward 1.3760.

The risk to watch for USD/CAD Bulls is whether we are beginning an impulsive decline. Given the choppy nature of the move higher since May, many traders have been watching for a continuation of the January 2017 move that saw a ~16% decline in a little more than 4-months. A technical break of 1.30164 (1.618% extension from Mar. 9 high) and the 2017 low of 1.2968 would favor the impulsive decline that could see sharp gains in CAD.

Lastly, keep an eye on RSI(5) on the Daily chart. We could soon see a move into oversold territory. Such extremes do not necessarily represent a reversion to the mean trade. It could be an indication of an impulsive decline if we hit oversold on RSI(5) by showing below 20 while never breaking above the April Opening Range high.

Chart Created by Tyler Yell, CMT

USD/CAD Sentiment:

USDCAD: Retail trader data shows 49.8% of traders are net-long with the ratio of traders short to long at 1.01 to 1. The number of traders net-long is 1.9% lower than yesterday and unchanged from last week, while the number of traders net-short is 1.3% lower than yesterday and 16.3% lower from last week.

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

What do retail traders’ buy/sell decisions hint about the CAD trend? Find out here !


Shorter-Term USD/JPY Technical Levels: Wednesday, April 12, 2017

For those interested in shorter-term levels of focus than the ones above, these levels signal important potential pivot levels over the next 48-hours.

Contact and discuss markets with Tyler on Twitter: @ForexYell

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