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USD/CAD Technical Analysis: Volatility Up Near YTD Highs

USD/CAD Technical Analysis: Volatility Up Near YTD Highs

Tyler Yell, CMT, Currency Strategist

Will CAD go the way of Crude Oil in 2Q? See our forecast to find out what’s driving market trends!

Talking Points:

  • USD/CAD technical strategy:favoring shallow correction, anticipatingupside
  • USD/CAD upside momentum currently stalled, watching support at 1.3575
  • 6 Canadian banks cut by Moody's on challenging environment (housing credit risks)

The bid in Crude Oil over the last few sessions has been welcomed news for CAD longs, which benefit when USD/CAD falls. However, the news out of the energy market may not stay supportive for long. On Thursday, OPEC raised their 2017 estimate of supply growth from non-OPEC producers (i.e., US Shale) by 46%, which is a direct threat to the supply curbs put in place by OPEC and Russia and expected to be extended to help rebalance the market. While there has been a bounce in Crude Oil over the last few sessions, hopeful bulls should be reminded we traded at 5-month lows last week, and we continue to get information showing that global demand may be falling, not rising as total supply is not falling as much as originally planned.

Recommended Reading: Crude Oil Price Forecast: OPEC’s Kitchen Sink Fails To Lift Crude

In local news for Canada, an overnight headline from the credit rating agency Moodys provided plenty of worry for long-term Canadian Dollar bulls. Moody’s downgraded six Canadian banks amid concern about “a more challenging operating environment for banks in Canada for the remainder of 2017 and beyond, that could lead to a deterioration in the banks’ asset quality, and increase their sensitivity to external shocks.”

Despite the recent concerns, USD/CAD has yet to trade above the May 5 and 2017 high of 1.3793. However, the recent volatile price action and discouraging undertones for drivers of CAD value may favor further CAD weakness and USD/CAD upside. The short-term zone of support for the uptrend is 1.3598 (December 28 high) and 1.3875 (38.2% retracement of the April-May range.) Should the price continue to close above this zone on a daily basis, the current sideways price action is preferred to be seen as a precursor before a move to new 2017 highs and toward the long-term target of 1.3838 (61.8% Fibonacci retracement of the 2016 range.)

Join Tyler at his Daily Closing Bell webinars at 3 pm ET to discuss key market developments.

Please add a description for the image.

Chart Created by Tyler Yell, CMT

IGCS: USD/CAD Insight from IG Client Positioning

USDCAD: As of May 11, retail trader data shows 28.5% of traders are net-long with the ratio of traders short to long at 2.51 to 1. In fact, traders have remained net-short since Apr 18 when USDCAD traded near 1.33163; theprice has moved 2.8% higher since then. The number of traders net-long is 0.4% lower than yesterday and 9.1% lower from last week, while the number of traders net-short is 12.2% lower than yesterday and 13.9% higher 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 less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed USDCAD trading bias. (Emphasis mine)


Shorter-Term USD/CAD Technical Levels: Thursday, May 11, 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.