Analys från DailyFX
USD/CAD in Focus to Close the Trading Week With CPI Data on Tap
Talking Points:
– USD/CAD trading above the 1.28 handle after one of the longest consecutive days decline in years
– Canadian CPI data a major event risk on the docket
– 20-day USD/CAD and Crude Oil correlation at -0.83 at the time of writing, 10-day at -0.92
The USD/CAD is trading above 1.28 at the time of writing, apparently finding some support following one of the longest consecutive days decline in years.
In the outlook for the pair last week, we suggested that in the current trading environment, with major central bank meetings in the rearview mirror, focus may now start to shift more to Crude Oil prices as a major market theme and a directional cue for short term traders as well, while putting focus on possible breakout from a technical consolidation pattern.
Indeed, 20-day USD/CAD and Crude Oil correlation sites at -0.83 at the time of writing, and 10-day correlation at an impressive -0.92.
With that said, Canada data prints could affect the currency, and today’s Canadian CPI figures take center stage in the hours ahead.
Against this backdrop we will form our outlook and look to find short term trading opportunities using different tools such as the Grid Sight Index (GSI) indicator.
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Canadian July CPI readings are set to hit the wires 12:30 GMT. Headline CPI is expected to slightly downtick for a 1.4% year-on-year print, while Core CPI is anticipated to remain at 2.1%.
With risks surrounding the inflation outlook remaining ‘roughly balanced’, the BOC might opt to remain on the sidelines and continue to endorse a perceived “neutral” monetary policy stance.
Taking that into consideration, initial market reaction to the figures could be a straightforward move on better/ worse than expected figures.
An interesting scenario could potentially develop if we see a slight miss to expectations in the headline figure. If at the time the figures hit the wires Crude Oil is showing a strong bid, an initial knee-jerk USD/CAD advance might provide an opportunity for participants looking for a correction in the pair.
USD/CAD Technical Levels:
Click here for the DailyFX Support Resistance tool
We use volatility measures as a way to better fit our strategy to market conditions. The USD/CAD is seeing slightly subdued levels of volatility lately (based on 20-day ATR readings), despite the impressive move to the downside. 1-week implied volatility measures are quite low as well, implying that a catalyst might be required for another push lower.
In turn, this may suggest that range bound trading plays might be appropriate in the short term, with the CPI reading a possible candidate for volatility.
USD/CAD 30-Min Chart (With the GSI Indicator): August 19, 2016
(Click to Enlarge)
The USD/CAD is at a potential interim resistance level at around the 1.2837 level at the time of writing, with GSI calculating slightly higher percentage of past movement to the downside in the short term.
The GSI indicator above calculates the distribution of past event outcomes given certain momentum patterns. By matching events in the past, GSI describes how often the price moved in a certain direction.
You can learn more about the GSI here, and download the Trade Station version here.
Further levels of resistance might be 1.28675, followed by the area above 1.29, 1.2950, 1.2980 and the 1.30 handle.
Possible levels of support on a move lower may be 1.2800, 1.2766 the 1.27 handle and a zone below 1.2650.
We generally want to see GSI with the historical patterns significantly shifted in one direction, which alongside a pre-determined bias and other technical tools could provide a solid trading idea that offer a proper way to define risk.
We studied over 43 million real trades and found that traders who successfully define risk were three times more likely to turn a profit.
Read more on the “Traits of Successful Traders” research.
Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing that about 62.44% of FXCM’s traders are long the USD/CAD at the time of writing. The SSI is mainly used as a contrarian indicator implying weakness ahead.
You can find more info about the DailyFX SSI indicator here
— Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com
To contact Oded Shimoni, e-mail oshimoni@dailyfx.com
Follow him on Twitter at @OdedShimoni
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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