Canadian Dollar Forecast: Range, Triangle Remain Dominant Patterns - Setups in CAD/JPY, USD/CAD
Canadian Dollar Outlook:
- The Canadian Dollar is trading sideways as a result of conflicting influences: an improvement in risk appetite as well as a decline in oil prices.
- USD/CAD rates’ 150-pip range continues to hold, while CAD/JPY rates remain within the parameters of a symmetrical triangle.
- According to the IG Client Sentiment Index, USD/CAD rates have a mixed bias in the near-term.
Tug and Pull
The Canadian Dollar is being pulled in opposite directions as the Russia-Ukraine crisis ebbs and flows. And that is likely to remain the case for the foreseeable future, until permanent de-escalation is achieved. When tensions flare, oil prices have rallied, an otherwise positive development for the Loonie only to be offset by the broader risk-off tone that dominates markets.
Today has produced the diametrically opposite scenario. With news that tensions are easing, oil prices have dropped, an otherwise negative development for the Canadian Dollar that has been offset by the broader risk-on tone coursing through markets.
Accordingly, more consolidation is eyed in pairs like CAD/JPY and USD/CAD rates, both of which remain in ranges or triangles that are in no hurry to yield breakout opportunities.
CAD/JPY Rate Technical Analysis: Daily Chart (February 2021 to February 2022) (Chart 1)
CAD/JPY rates have continued their multi-week sideways grind, holding within the parameters of a symmetrical triangle that has been forming since September 2021. To this end, nothing has changed, “as the preceding move was higher, the ultimate resolution of the symmetrical triangle is eyed for a bullish breakout – consistent with the bigger picture rally above the descending trendline from the November 2007 (all-time high) and December 2014 highs.” Furthermore, “CAD/JPY rates are still in the early stages of finding their footing for another attempt to climb through 92.00, ultimately “on course to return to their 2021 high at 93.02 in the coming weeks.”
USD/CAD Rate Technical Analysis: Daily Chart (February 2021 to February 2022) (Chart 2)
Since late-January, USD/CAD rates have traded between their daily 21-EMA (one-month moving average) and the 38.2% Fibonacci retracement of the 2012 low/2016 high range, approximately a 150-pip range. It thus remains the case that, “consistent with sideways moves, opportunities for a bullish breakout or a bearish breakout exist simultaneously. Should USD/CAD rates trade higher through 1.2800, the measured move calls for a return to the December highs near 1.2950. Conversely, and what is the preferred direction, a breakdown by USD/CAD rates below 1.2650 would target 1.2500, where the rising trendline from the June and October 2021 swing lows appears.”
IG Client Sentiment Index: USD/CAD Rate Forecast (February 15, 2022) (Chart 3)
USD/CAD: Retail trader data shows 60.06% of traders are net-long with the ratio of traders long to short at 1.50 to 1. The number of traders net-long is 2.50% lower than yesterday and 21.79% lower from last week, while the number of traders net-short is 5.12% lower than yesterday and 6.28% higher 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.
Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed USD/CAD trading bias.
--- Written by Christopher Vecchio, CFA, Senior Strategist
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