Talking Points:

  • USD/CAD Technical Strategy: strong support at 1.2666, upside favored above
  • CAD unemployment rate lowest in a decade on hiring boom
  • CAD rises 1.7% vs. USD as 2Yr Government yields rises on hopes BoC may act sooner
  • Sentiment Highlight: bearish shift in retail positioning provides ST bullish outlook

The long-suffering, at least since mid-September Canadian Dollar (CAD) Bulls had a good Friday. CAD initially surged after data showed Canada added 79,500 jobs last month (US employment data will be next Friday), which was the largest gain in 5 years while smashing expectations. The employment data in Canada also showed the lowest unemployment rate in a decade.

Mere hours after the good Canadian economic data hit the headlines, the dollar dropped nearly across the board. The catalyst was breaking news that a Russian Probe in the US surrounding a former US Presidential cabinet member, Michael Flynn has admitted to lying to federal agents regarding his involvement with Russia leading up to the 2016 US Presidential election.

The one-two punch gave the Canadian Dollar its largest gain since September 6, and the third largest gain for 2017. Traders keen on looking to options should note that the long-term case has not changed much. While short-term bets on further CAD weakness declined, the options market of risk reversals showed that the 1-year structure is still betting on further CAD weakness against the USD.

Despite the Canadian Dollar’s impressive one-day range, it is difficult to be fully on board with chasing this move. Despite the political risk premium that oscillates from week-to-week in the US, the fundamentals show more steam in the US engine than Canada’s that could lead to a more aggressive Fed than BoC over 2018. Short-term support on the chart will be 1.2666, the November low. The bias on USD/CAD would fundamentally shift from Bullish to neutral on a move below 1.2450, the October closing low.

From an Elliott Wave perspective, USD/CAD may be tracing out the last leg of a three-wave flat corrective move that may precede a resumption of the trend higher. Should the bullish case resume, the next target would be the 200-DMA at 1.2964.

Unlock our Q4 forecast to learn what will drive trends for the US Dollar through year-end!

Diverging News Flow Rocks USD/CAD Bulls, Flynn Russia Probe Drops USD

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.

Diverging News Flow Rocks USD/CAD Bulls, Flynn Russia Probe Drops USD

USDCAD: Retail trader data shows 47.1% of traders are net-long with the ratio of traders short to long at 1.12 to 1. In fact, traders have remained net-short since Nov 24 when USDCAD traded near 1.27031; the price has moved 0.1% higher since then. The number of traders net-long is 12.4% lower than yesterday and 20.8% lower from last week, while the number of traders net-short is 25.7% lower than yesterday and 30.8% 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 added.)

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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

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