Canadian dollar technical analysis: deeper setbacks emerge
Canadian dollar outlook:
- USD / CAD rates tear towards a confluence of resistance, thanks in part to the lack of hawkish signals from the Bank of Canada yesterday.
- Meanwhile,CAD / JPY rates have lost a significant uptrend as the appetite for risk decreases.
- According to IG Customer Sentiment Index, USD / CAD rates have a mixed short-term bias.
Lose the story
The Canadian dollar is struggling to weather some short-term headwinds at this time. Weak energy markets undermined a powerful catalyst, as the Bank of Canada‘s July meeting lived up to expectations on its reduction efforts – and that’s it. BOC rate hike odds through year-end have fallen from around 40% to 30% in the past 36 hours.
Elsewhere, falling global bond yields (eroding carry trade) coupled with weak equity markets have sapped risk appetite. The impact on the CAD / JPY and USD / CAD rates produced significant technical developments until mid-July.
CAD / JPY technical analysis: daily chart (June 2020 to July 2021) (Chart 1)
CAD / JPY rates fell to a new monthly low on the session, trading at 87.11 at the time of writing. They are below their daily EMA envelope, which is in full bearish sequential order. The Daily MACD is falling, while the Daily Slow Stochastics are moving back into oversold territory. Meanwhile, CAD / JPY rates also fell below the 38.2% Fibonacci retracement of the uptrend from the late January May low / high at 87.29, suggesting that a deeper pullback is possible in below 86.00 in subsequent sessions.
Technical analysis of the USD / CAD rate: daily chart (June 2020 to July 2021) (Chart 2)
USD / CAD rates are struggling as BOC rate hike ratings retreat and Fed rate hike ratings move forward, very slowly. Sprinkle in weaker crude oil prices, and it’s a potent short-term mix for more upside in the pair. After already breaking resistance from the descending channel earlier this month, new July highs were set today. The dynamic profile of the pair is totally bullish, with USD / CAD rates above their daily EMA envelope in a sequential bullish order, while the daily MACD has hit its highest level since the start of the pandemic and slow stochastics dailies are on the verge of overbought. territory. Further gains towards the April high (bearish key reversal high) at 1.2654 look plausible before resistance is found.
IG Client Sentiment Index: USD / CAD rate forecast (July 15, 2021) (Chart 3)
USD / CAD: Retail traders data shows 59.26% of traders are net long with a ratio of long to short traders of 1.45 to 1. The number of net long traders is 15.60% lower than that of yesterday and 9.57% higher than last week. while the number of net-short traders is 9.70% higher than yesterday and 2.51% lower than last week.
We generally take a contrarian view of crowd sentiment, and the fact that traders are net long suggests that USD / CAD prices may continue to decline.
The positioning is shorter on the net than yesterday but longer on the net than last week. The combination of current sentiment and recent changes gives us another USD / CAD blended trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist