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Talking Points:
- USD/CAD Technical Strategy: strong support at 1.2451, trendline providing support
- CAD correlation to Crude Oil has recently picked up just in time for Crude to fall 5% from monthly high
- Sentiment Highlight: shift to bullish retail bias provides ST bearish outlook
The Canadian Dollarmay have picked a poor time for the correlation to Oil to pick back up since Oil has spent the last handful of trading sessions retreating from a 27-month high. The uptrend of USD/CAD has recently found support from a trendline drawn off the September low and October 19 low as well as the 21-DMA near 1.2743. Below this zone, traders may find support at the 38.2% retracement of the September-October range at 1.2723.
The under-performance of economic data paused on Thursday through the trend since September of underperformance remains concerning for CAD bulls. The price of Crude Oil has recently begun to explain CAD volatility as the correlation has risen to +0.2 after being flat for much of the summer as the 2-year yield spread between government debt was a driving force of the currency. Crude Oil bears have re-emerged after doubts surfaced about the long and how many countries will join the OPEC+ ( a moniker for OPEC and strategic alliances like Russia) production curb extension past March 2018 to further support the price of Oil.
The technical outlook is focusing on further rises against the broader downtrend that began in early May. Short-term support is the trendline drawn from September and October 18 low. Over the next few trading sessions, a hold above the November 10/9 lows at 1.2666/68 will provide a broader bias higher though sentiment below argues we could test and break those levels of support. Currently, a hold above the trendline and 1.2666/68 area favors a march toward 1.2799 (Nov. 2 low), followed by 1.2817/58 (Oct. 25/26 high,) and lastly the 200-DMA at 1.2985.
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Chart created by Tyler Yell, CMT. Tweet @ForexYell for comments, questions
USD/CAD Insight from IG Client Positioning: overall selling bias provides ST bullish outlook
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 48.3% of traders are net-long with the ratio of traders short to long at 1.07 to 1. The number of traders net-long is 4.4% higher than yesterday and 9.7% lower from last week, while the number of traders net-short is 4.2% lower than yesterday and 45.7% 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 added.)
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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com
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