Canadian Dollar Rate Forecast: CAD Weakness Extends on DXY Rebound
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Canadian Dollar Talking Points:
- USD/CAD Price Forecast: Unwind from bullish falling-wedge pattern in focus
- USD Rebound makes CAD quite susceptible to further losses ahead of CA CPI, retail sales
- IG UK Client Sentiment Highlight: Retail buying jumps providing stronger USD/CAD bearish bias
Traders have been unclear if the market is punishing CAD or using it as a vehicle to play the US Dollar Index’s rejection of the 8830-level. Either way, the question remains as to whether the USD is undervalues, and if the CAD should be sold given the fundamental concerns about the uber-levered economy with a relatively large current account deficit much like the UK.
Canadian Economy Has Bright spots Despite Recent Weakness
On the positives, Canada has seen a marked improvement thanks to terms of trade on the increasing premium of Western Canadian Crude in addition to the third increase in CA manufacturing PMI.
Canadian Dollar Rate Technical Focus
USD/CAD is coming into a critical level of resistance that can be seen as CAD support near 1.2585-1.2600. Similarly, EURCAD is coming into key resistance at 1.5750/5920, which are levels that saw a strong rebound in CAD in 2014 and 2016.
USD/CAD can look to 1.2585 (50% retracement mark of December-January range,) and 1.2590 (Jan. 11 intraday high and early Feb. closing high) as key resistance. A breakout and close above this zone could favor a key move higher that may eventually see a retest of 1.2890/1.2928 (100% Fib. Extension and December high respectively) or 1.3161 (161.8% Fibonacci extension off January 31 low.)
ST trend support can be found at 1.2520, but traders should continue to cautiously favor upside above 1.2450 (February 16 low.)
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USD/CAD H4 Chart: Higher Into Key Resistance - Ichimoku Cloud Favors Breakout Watch
Chart created by Tyler Yell, CMT. Tweet @ForexYell for comments, questions
Valuable Insight from IG Client Positioning for USD/CAD
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.
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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com
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