Can CAD strength continue? Click here to see our forecast and find out what is driving market trends!
Highlights:
- USD/CAD technical strategy: short with trailing stop moved to 1.3147
- USD/CAD approaching new 2017 lows (1.2970 is current low) showing CAD strength
- Previous Technical Note: USD/CAD Technical Analysis: Basing or Retracing? That is the Question
The price of commodities like crude oil is turning aggressively higher to end the month, quarter and first half of 2017 to the benefit of Canadian Dollar longs. This week, in Sintra, Portugal we heard from Bank of Canada governor, Stephen Poloz who has encouraged markets to anticipate a BoC rate hike later this year as central bankers the world over appear to be changing their tone on forward guidance. Add to the positive tone from Poloz and the rebound in the price of crude oil, which could run higher sets up an environment that favors selling pull-backs in the pair now that the price has broken below the 13-month channel.
Recommended Reading: Crude Oil Price Forecast: How a WTI Bounce Could Travel Fast
Another helpful component to the strong Canadian Dollar is a weak USD. The Dollar index is working on its fourth monthly loss, which is the most since early 2011 when the Fed had just embarked upon QE2. The market appears unconvinced that the Fed’s ambitious hiking cycle to 3% by the end of 2019 will be met, and the weakening USD looks to be an erosion of the first-mover advantage as the Fed was the first central bank to hike helping to boost USD. Friday will provide more economic data, which if encouraging, would likely further propel the chances of a July BoC hike that would keep USD/CAD strong. The BoC rate announcement is July 12.
When looking at the chart, the highlight is the breakdown below the corrective channel from May 2016 from 1.2460. If we are embarking on a new round of Canadian Dollar strength, we may find ourselves revisiting that level and lower as we approach 2018. The price break of 1.3000 is encouraging, and short-term resistance could be seen at 1.3147, which is a short-term downtrend peak on the recent move lower. A hold below this level will be expected to eventually take us to new 2017 lows (currently at 1.2970) and toward a downward 161.8% Fibonacci extension of 1.2895. Strengthening in crude oil would likely accompany such a move. A move above 1.3147 would take me out of the trade and shift me to neutral, where I’d reassess and look for a better tactical entry.
Click here to read a USD/CAD Analyst Pick: Bearish USD/CAD on BoC’s Hawkish Surprise & Fed’s Hawkishness In Doubt
Join Tyler at his Daily Closing Bell webinars at 3 pm ET to discuss key market developments.
Chart Created by Tyler Yell, CMT
USD/CAD Insight from IG Client Positioning: Drop in retail shorts favor breakdown continuation
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.
USDCAD: Retail trader data shows 74.2% of traders are net-long with the ratio of traders long to short at 2.88 to 1. In fact, traders have remained net-long since Jun 07 when USDCAD traded near 1.34768; price has moved 3.5% lower since then. The percentage of traders net-long is now its highest since Jan 25 when USDCAD traded near 1.30674. The number of traders net-long is 25.4% higher than yesterday and 21.1% higher from last week, while the number of traders net-short is 23.3% lower than yesterday and 39.7% 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)
---
Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com
To receive Tyler's analysis directly via email, please SIGN UP HERE
Contact and discuss markets with Tyler on Twitter: @ForexYell
