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Canadian Dollar Talking Points:
- USD/CAD Price Forecast: Unwind from bullish falling-wedge pattern in focus
- Employment data in CA seen as fluke in light of broader employment trend
- Sentiment Highlight: Retail long bias favors further contrarian downside
Traders should be salivating when a move like we have recently seen in USD/CAD develops. In short, after tracing out a bullish falling wedge pattern, the price has retraced 61.8% to a 2018 high (low-point so far for CAD) at 1.2665 after a key employment data number showed the most jobs albeit, part-time and not as detrimental to economic health.
CAD Tests & Reverses Off 2018 Low After Employment Miss
As of the writing, the price is off ~70 pips from the session high and back below the 100-DMA, but the focus should be on what happens from here. The US Dollar Index has been sold despite multiple bullish arguments. The Canadian Dollar and other commodity currencies have been a unique benefactor of the risk-on euphoria that closed out 2017, opened in 2018 and sharply flipped in early February.
A breakdown in price (CAD strength resumption) would likely come from confirmation from the Bank of Canada that they were looking to continue raising rates given the broader backdrop of economic strength. Currently, the odds of a Bank of Canada rate hike in March are currently near ~15%, and a rise in that expectation would naturally see the USD/CAD rate fall.
Unlock our Q1 forecast to learn what will drive trends for the US Dollar at the 2018 open!
USD/CAD Chart: Trades Quickly Into Key Resistance -Ichimoku Cloud
Chart created by Tyler Yell, CMT. Tweet @ForexYell for comments, questions
Levels To Validate CAD Strength
The USD/CAD rate tested major resistance at 1.2664, which aligned with the Ichimoku Cloud and 61.8% retracement of the December- January range. From here, a breakdown back below 1.2509 would argue that the US Dollar selling is continuing, and the bearish pressure is building again.
Learn about Trading With Fibonacci Analysis
Friday’s price high of 1.2685 should act as price resistance. A break and close above this level would favor further CAD weakness or flip in the weak USD narrative, but this remains a discounted outlook in favor of further CAD strength.f
Valuable Insight from IG Client Positioning for USD/CAD
Retail long bias favors further contrarian downside
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.
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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com
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