Analys från DailyFX
USD/CAD Price Analysis: CAD Breaks To 14-Month High Ahead Of Fed
What will happen to the USD as other central banks begin normalization? Click here to see our latest forecastsand find out what trades are developing in this new environment!
Key Takeaways:
- USD/CAD technical strategy: short with trailing stop moved to 1.2701, not holding above
- USD/CAD has tagged the 2.618% Fib extension (1.24925) on another expected BoC hike in Oct.
- IGCS Highlight: USD/CAD increase in longs to favor further downside (trend continuation)
To open the week, USD/CAD has traded to a fresh 14-month low as markets are anticipating an increasingly hawking BoC. Thanks to the Federal Reserve rate announcement this week, traders will not have to guess where the Fed stands regarding upcoming tightening for long. The Fed rate announcement on Wednesday is not expected to bring any surprises (or hikes for that matter) but may provide an indication that the Fed will begin the unwinding of their $4.5T balance sheet to a more normal level given the economic stabilization after the Great Financial Crisis.
Learn what you need to know about the Fed Balance Sheet unwind here
The sharp strengthening since May has been blamed and will continue to be blamed on the disparity between how the Bank of Canada looks to tighten monetary policy while the Fed may be less aggressive due to a weakening economic and inflation picture in the US. As of late July, the market is now pricing in a ~70% chance of an October hike by the Bank of Canada while the market is pricing in a 48% chance of another hike in 2017 by the Fed in December.
The Canadian dollar has strengthened against the USD in a nearly straight line and is stronger vs. the USD by 3.5% since BoC raised rates for the first time in 7-years in mid-July.
The key target in focus is the early May 2016 low of 1.2461. However, if you look at the chart below, you can see that that May ’16 low was reached after a ~2,200 pip decline in nearly four months. If we’re about to see a similar breakdown as in H1 2016, I will anticipate a move to target a minimum 1.2332, and if the trend does not stall there, we could be making a move sub-1.200. A break above the July 20 high of 1.2640 would be the first indication of a retracement in the trend, and I would not want to hold a short trade above 1.2701 for fear of a snap back retracement to 1.29/30.
Recommended Reading: US Dollar To 13-Month Low, Oil Price Suffers on Rising OPEC Supply
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Daily USD/CAD Chart: The CAD is looking like a runaway train on stable oil and data uptick
Chart Created by Tyler Yell, CMT
USD/CAD Insight from IG Client Positioning: Increase in long positions favors further downside
The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at tyell@dailyfx.com.
USDCAD: Retail trader data shows 74.6% of traders are net-long with the ratio of traders long to short at 2.94 to 1. In fact, traders have remained net-long since Jun 07 when USDCAD traded near 1.34954; price has moved 7.3% lower since then. The number of traders net-long is 3.6% higher than yesterday and 3.6% higher from last week, while the number of traders net-short is 6.5% higher than yesterday and 8.6% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDCAD prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed USDCAD trading bias.(Emphasis mine)
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Written by Tyler Yell, CMT, Currency Analyst Trading Instructor for DailyFX.com
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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
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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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