USD/CAD Technical Analysis: CAD Leaves Low-Vol G10 In Its Tracks
- USD/CAD technical strategy: remaining short below 1.3545 on closing basis
- Bank of Canada’s Wilkin’s & Poloz scare CAD shorts on upbeat outlook
- Canadian Dollar Adds To Gains Ahead of Central Bank Filled Week
The emerging Canadian Dollar strength caught a lot of traders off guard this week. For one, in a low volatility environment, a strong move tends to lack follow-through. CAD strengthened impressively on Friday after an employment report that featured a 77k increase in full-time jobs vs. an expected 15k increase.
The real shot in the arm to the Canadian dollar that allowed it to build on Friday’s gains came off the back of comments from Bank of Canada’s Sr. Deputy Governor, Carolyn Wilkin’s provided a handful of encouraging notes about the Canadian economy that were echoed by Governor Stephen Poloz on Tuesday morning. Wilkins stated that the Bank of Canada was able to get ahead of the Oil price declines effect on the economy with rate cuts from years ago and that they see Q1 growth at an impressive rate with broadening growth. On Tuesday, Governor Poloz shared that they are encouraged by economic growth that is both broadening and gaining momentum, and he added that recent BoC easing actions have “done their job.”
The Canadian Dollar strength was also seen via the positively correlated 2-yr Canadian sovereign yields, which rose by more than 8pbs or ~11%. These supportive comments from the Bank of Canada members came at a good time as leveraged institutions per the CFTC’s Commitment of Traders report in the week ended June 6 cut their short positions on CAD futures by ~1,100.
Since trading near 1.3550 before Friday’s Canadian employment report, the Canadian dollar has strengthened by 300 pips against the USD and 750 pips against the vulnerable British Pound. As mentioned earlier, the low volatility environment discourages chasing breakouts. However, a break and close below the channel on the chart below that aligns with the April low at 1.3216 is likely indicative of a behavioral shift in the Canadian Dollar that would favor more structural medium-term strength. The first focus on a significant break from the long-term rising channel would be the 2017 low at 1.2970.
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Chart Created by Tyler Yell, CMT
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USDCAD: Retail trader data shows 61.0% of traders are net-long with the ratio of traders long to short at 1.57 to 1. The number of traders net-long is 11.3% higher than yesterday and 8.3% higher from last week, while the number of traders net-short is 16.6% lower than yesterday and 35.3% lower 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. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDCAD-bearish contrarian trading bias.(Emphasis mine)
Shorter-Term USD/CAD Technical Levels: Tuesday, June 13, 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.
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