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Canadian Dollar Outlook: USD/CAD Probes Pivotal Support- Loonie Setup

Canadian Dollar Outlook: USD/CAD Probes Pivotal Support- Loonie Setup

2020-10-06 15:30:00
Michael Boutros, Strategist
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Canadian Dollar Technical Price Outlook: Near-term Trade Levels

  • Canadian Dollar updated technical trade levels – Daily & Intraday Charts
  • USD/CAD pullback approaching key technical inflection zone
  • Bears vulnerable near-term while above 1.3256 - Key resistance 1.3384
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The Canadian Dollar is up more than 0.3% against the US Dollar since the start of the week with Loonie attempting to build on the late-September offensive. The USD/CAD bears may be vulnerable however as the move takes price into a key inflection zone with major event risk on tap this week – we’re looking for a reaction off this support threshold for guidance in the days ahead. These are the updated targets and invalidation levels that matter on the USD/CAD price charts. Review my latest Strategy Webinarfor an in-depth breakdown of this Loonie technical setup and more.

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Canadian Dollar Price Chart – USD/CAD Daily

Canadian Dollar Price Chart - USD/CAD Daily - Loonie Trade Outlook - Technical Forecast

Chart Prepared by Michael Boutros, Technical Strategist; USD/CAD on Tradingview

Technical Outlook: In my last Canadian Dollar Price Outlook we noted that the USD/CAD rally was, “approaching near-term uptrend resistance and while the broader outlook remains constructive, the bulls may be vulnerable here look for a reaction on a test of 1.3384 for guidance.” Price registered an intraday high at 1.3420 but failed to mark a single daily close above the 100% extension. An outside-day reversal into the close of the month fueled a pullback of more than 1.3% with the decline now attempting to break below channel support / the 38.2%Fibonacci retracement at 1.3256- looking for inflection here.

A close lower would suggest a larger correction is underway with such a scenario exposing the 61.8% retracement of the late-August rally at 1.3156. Monthly open resistance stands at 1.3316 with a breach / close a above 1.3384 still needed fuel the next leg higher towards 1.3450.

Canadian Dollar Price Chart – USD/CAD 120min

Canadian Dollar Price Chart - USD/CAD 120min - Loonie Trade Outlook - Technical Forecast

Notes: A closer look at Loonie price action shows USD/CAD trading within the confines an embedded descending pitchfork formation with the median-line offering support today. Initial resistance stands at the weekly open at 1.3297 backed closely by the June Low / monthly open at 1.3315/16- we’ll reserve this threshold as our bearish invalidation level with a breach / close above needed to shift the focus higher again in the Dollar. A break lower from here would expose subsequent support objectives at 1.3206 and the 1.3156- an area of interest for possible downside exhaustion IF reached.

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Bottom line: The late-September reversal in USD/CAD is now testing a key inflection zone in price at confluence uptrend support. From a trading standpoint, a good zone to reduce short-exposure lower protective stops. Be on the lookout for topside exhaustion ahead of 1.3316 on rallies IF price is indeed heading lower. Keep in mind Canada employment data is on tap into the close of the week- stay nimble here. Review my latest Canadian Dollar Weekly Price Outlook for a closer look at the longer-term USD/CAD technical trade levels.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Canadian Dollar Trader Sentiment – USD/CAD Price Chart

Canadian Dollar Trader Sentiment - USD/CAD Price Chart - Loonie Trade Outlook - Technical Forecast
  • A summary of IG Client Sentiment shows traders are net-long USD/CAD - the ratio stands at +1.91 (65.68% of traders are long) – bearish reading
  • Long positions are11.27% higher than yesterday and 36.75% higher from last week
  • Short positions are 20.81% higher than yesterday and 7.32% lower from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall. Traders are less net-long than yesterday but more net-long from last week. The combination of current positioning and recent changes gives us a further mixed USD/CAD trading bias from a sentiment standpoint.
USD/CAD BULLISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -3% 1% -1%
Weekly -31% 14% -15%
Learn how shifts in USD/CAD retail positioning impact trend
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Key US / Canada Data Releases

Key US / Canada Data Releases - USD/CAD Economic Calendar - Loonie Event Risk - 10-6-2020

Economic Calendar - latest economic developments and upcoming event risk.

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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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