Canadian Dollar Outlook:
- The Canadian Dollar has weathered a bout of unhealthy financial knowledge, persevering with to be buoyed by oil costs.
- USD/CAD charges are in a sideways vary spanning roughly 150-pips, whereas CAD/JPY charges proceed to commerce inside the confines of a symmetrical triangle.
- According to the IG Client Sentiment Index, USD/CAD charges have a bearish bias within the near-term.
Through the Storm
Last week it was famous that the upcoming slate of Canadian financial knowledge might present “an opportunity to ‘buy the dip’ in CAD/JPY rates, or conversely, ‘selling the rally’ in USD/CAD rates.” Indeed, with the January Canada employment change report and unemployment charge disappointing expectations, weak point was seen within the main CAD-crosses.
Alas, the storm might have handed for the Loonie. A continued push greater by rates of interest in developed economies has secure haven currencies on their backfoot, whereas beneficial properties by crude oil costs proceed to make the Canadian Dollar a lovely proxy. The current vary carved out by USD/CAD charges might quickly yield a bearish breakout alternative, whereas CAD/JPY charges might quickly have the possibility to commerce to multi-month symmetrical triangle resistance.
CAD/JPY Rate Technical Analysis: Daily Chart (February 2021 to February 2022) (Chart 1)
CAD/JPY charges have been grinding sideways for the previous two weeks, nonetheless trapped inside the confines of a symmetrical triangle that has been carved out since September 2021. It stays the case that “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 October 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)
For almost the previous two weeks, USD/CAD charges have been buying and selling sideways between their every day 21-EMA (one-month shifting common) and the 38.2% Fibonacci retracement of the 2012 low/2016 excessive vary, roughly a 150-pip vary. Consistent with sideways strikes, alternatives for a bullish breakout or a bearish breakout exist concurrently. Should USD/CAD charges commerce greater by way of 1.2800, the measured transfer requires a return to the December highs close to 1.2950. Conversely, and what’s the most popular path, a breakdown by USD/CAD charges under 1.2650 would goal 1.2500, the place the rising trendline from the June and October 2021 swing lows seems.
IG Client Sentiment Index: USD/CAD Rate Forecast (February 7, 2022) (Chart 3)
USD/CAD: Retail dealer knowledge reveals 63.74% of merchants are net-long with the ratio of merchants lengthy to brief at 1.76 to 1. The variety of merchants net-long is 23.25% greater than yesterday and 14.19% greater from final week, whereas the variety of merchants net-short is 7.04% greater than yesterday and 18.28% decrease from final week.
We sometimes take a contrarian view to crowd sentiment, and the actual fact merchants are net-long suggests USD/CAD costs might proceed to fall.
Traders are additional net-long than yesterday and final week, and the mixture of present sentiment and up to date adjustments offers us a stronger USD/CAD-bearish contrarian buying and selling bias.
— Written by Christopher Vecchio, CFA, Senior Strategist
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