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USD/CAD Technical Analysis: CAD Remains Advantaged with USD on its Heels

USD/CAD Technical Analysis: CAD Remains Advantaged with USD on its Heels

2017-06-05 18:01:00
Tyler Yell, CMT, Currency Strategist
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Think CAD strength is making a comeback? See our forecast to find out what is driving market trends!

Talking Points:

  • USD/CAD technical strategy: holding a ‘sell’ bias below 1.3545 on closing basis
  • USD/CAD downside momentum currently stalled, watching break below 1.3390
  • CAD employment data + housing data later in the week likely CAD-drivers in week ahead

Despite post-OPEC Crude Oil weakness, the Canadian Dollar has managed to hold a below the mid-point of a rising channel that has taken USD/CAD from a low of 1.24 in May of 2016 to just shy of 1.38 in early May. Since the near-touch of 1.38, USD/CAD has fallen back to earth and may continue to do so when looking at what appears to be a momentum overshoot similar to what was seen in January 2016 before falling nearly 16% in fourth months.

The chart below shows how aggressively high RSI(5) on the daily chart was with the recent tag of the 100% Fibonacci expansion. Now, it’s helpful to look behind price to see the driving forces, but one could argue that given the relative weakness of the USD that the CAD is ripe to extend its gains to the bottom of the price channel at 1.3250 if the price can break below the late May low of 1.3390.

The question of what will eventually drive the USD, and thus USD/CAD higher remains unanswered. It is difficult to get confident of the long’s argument for USD/CAD. However, we remain trading in a choppy rising channel, which argues that it is difficult (or unwise) to hold un-managed short trades in this environment.

That being said, a look at shorter-term charts do show an impulsive five-wave move lower from the 1.3793 high in May. I favor a move lower, but what happens near 1.3250 is likely the real show for technical traders. The sentiment picture is showing that prices may continue to fall when taking a contrarian view, but again, we’ll have to revisit sentiment, the fundamental picture and price action if we get to the bottom of the channel to see where higher probability trade lies.

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

USD/CAD Technical Analysis: CAD Remains Advantaged with USD on its Heels

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 Remains Advantaged with USD on its Heels

USDCAD: Retail trader data shows 51.0% of traders are net-long with the ratio of traders long to short at 1.04 to 1. The number of traders net-long is 3.8% lower than yesterday and 5.8% higher from last week, while the number of traders net-short is 25.8% higher than yesterday and 8.0% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDCAD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USDCAD price trend may soon reverse higher despite the fact traders remain net-long. (Emphasis mine)

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Shorter-Term USD/CAD Technical Levels: Monday, June 5, 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 Remains Advantaged with USD on its Heels

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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