Canadian Dollar Outlook: USD/CAD Snaps Five-Days Down- Reversal Risk

Canadian Dollar Technical Price Outlook: Near-term Trade Levels

• Canadian Dollar updated technical trade levels – Daily & Intraday Charts
• USD/CAD outside-day reversal off monthly open threatens larger recovery within multi-month consolidation pattern
• Key near-term support 1.2600/14 - Resistance 1.2713, 1.2780, 1.2822

The Canadian Dollar is off more than 0.5% against the US Dollar since the start of the week with USD/CAD attempting to snap a five-day losing streak today. An outside-day reversal threatens a larger recovery in the days ahead and keeps the focus on the objective yearly open. These are the updated targets and invalidation levels that matter on the USD/CAD price charts. Review my latest Strategy Webinar for an in-depth breakdown of this Loonie technical setup and more.

Canadian Dollar Price Chart – USD/CAD Daily

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

Technical Outlook: In my last Canadian Dollar Price Outlook we noted that USD/CAD was, “ in consolidation just above the monthly open and we’re looking for the breakout to offer guidance.” A topside breach the following day saw price stretch into the January high at 1.2881 before exhausting with the pullback once again settling above monthly open support at 1.2615. Loonie is threatening an outside-day reversal off the lows today and is set to snap a five-day losing streak for the US Dollar- is a near-term low in place?

Canadian Dollar Price Chart – USD/CAD 120min

Notes: A closer look at Loonie price action shows USD/CAD trading within the confines of a proposed ascending pitchfork off the recent lows. While its too early to rely on this slope, it does highlight near-term support at the objective weekly open at 1.2644 with key support steady at the 1.618% Fibonacci extension / September open at 1.2600/15. A break / close below this threshold would threaten a larger setback towards the September low-day close at 1.2524 and the 1.2440/77 Fibonacci confluence – both zones of interest for possible entries / downside exhaustion IF reached.

Initial resistance eyed at 1.2709/13 with a breach / close above needed to keep the near-term recovery viable towards 1.2745 and the upper parallel / 61.8% retracement at 1.2780- look for a larger reaction there IF reached with a breach exposing the high-day close at 1.2822 and the 100% extension at 1.2851.

Bottom line: USD/CAD is set to snap a five-day sell-off with today’s rally breaking near-term downtrend resistance. From at trading standpoint, look for downside exhaustion ahead of the weekly open IF price is heading higher on this stretch with a breach above the yearly open needed to threaten a larger recovery in price. Ultimately, Loonie remains within the confines of a broad multi-month price consolidation and we’ll be looking for the breakout to offer guidance as we head into October trade. 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

• A summary of IG Client Sentiment shows traders are net-long USD/CAD - the ratio stands at +2.34 (70.03% of traders are long) – typically bearish reading
• Long positions are3.11% higher than yesterday and 39.63% higher from last week
• Short positions are 6.81% lower than yesterday and 33.62% 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 further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger USD/CAD-bearish contrarian trading bias from a sentiment standpoint.

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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex