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USD/CAD Technical Analysis: CAD Strength Needs Oil to Follow Through

USD/CAD Technical Analysis: CAD Strength Needs Oil to Follow Through

2017-05-18 15:56:00
Tyler Yell, CMT, Currency Strategist
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Where have the commodity FX buyers gone in 2Q? See our forecast to find out what’s driving market trends!

Talking Points:

  • USD/CAD technical strategy: strong zone of support (1.3575/3441) likely to hold
  • USD/CAD downside momentum currently stalled, watching support at 1.3575
  • 1-week CAD volatility rising in anticipation of BoC decision/ NAFTA renegotiations

The Canadian Dollar continues to consolidate losses against the USD following the rebound in Crude Oil. In recent days, markets were cheered to hear that Saudi Arabia & Russia were encouraged by the lack of progress in their first round of production cuts to extend the next round of production cuts into Q1 2018. Naturally, US E&P in shale regions continues to pump aggressively, though production has dropped for the first time in 13 weeks, this news helped lift the price of Oil as well as Canadian Dollar demand.

Many traders wondering whether or not CAD will remain under pressure and USD/CAD would possible move higher are encouraged to look at the charts, which shows a large zone of price support from prior resistance starting at 1.3575. A failure for the price to penetrate the 1.3575/3441 support zone followed by a move above 1.3700 would favor a continuation higher even though some favored oscillators show USD/CAD as overbought.

Next week, traders can look to the Bank of Canada, which is fully expected to keep rates on hold despite an overheating housing market that recently caused Moody’s to downgrade a handful of Canadian financials. Should USD weakness persist, we could see further downside in USD/CAD, which would likely test the 61.8% Fibonacci level of the April/May rise at 1.3441. A close below 1.3441 would favor a stronger reversal in the pair and market developments should be watched to find the appropriate driver and whether or not it is expected to continue.

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

USD/CAD Technical Analysis: CAD Strength Needs Oil to Follow Through

Chart Created by Tyler Yell, CMT

USD/CAD Insight from IG Client Positioning

The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at tyell@dailyfx.com.

USD/CAD Technical Analysis: CAD Strength Needs Oil to Follow Through

USDCAD: Retail trader data shows 33.2% of traders are net-long with the ratio of traders short to long at 2.01 to 1. In fact, traders have remained net-short since Apr 18 when USDCAD traded near 1.33163; the price has moved 2.2% higher since then. The number of traders net-long is unchanged than yesterday and 18.1% higher from last week, while the number of traders net-short is 8.5% lower than yesterday and 19.6% 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. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current USDCAD price trend may soon reverse lower despite the fact traders remain net-short. (Emphasis mine)

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Shorter-Term USD/CAD Technical Levels: Thursday, May 18, 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.

USD/CAD Technical Analysis: CAD Strength Needs Oil to Follow Through

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.

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