In this series we scale-back and look at the broader technical picture to gain a bit more perspective on where we are in trend. The Canadian Dollar is the best performer against the US Dollar year-to-date with an advance of more than 4.3%. The move takes USD/CAD towards a critical weekly support confluence and the focus is on a reaction at this zone heading into the open of February trade. Here are the key targets & invalidation levels that matter on the USD/USD weekly chart.
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USD/CAD Weekly Price Chart
Notes: In last month’s USD/CAD Weekly Technical Outlook our ‘bottom line’ noted that price had, “broken below medium-term uptrend support after rebounding off critical resistance last week and leaves the risk for further losses.” The breakdown has now taken price below our final target at 1.3113/19 with a more significant weekly support barrier seen just lower at 1.3037/52– a region defined by the 52-week & 200-week moving averages and the 38.2% retracement of the 2017 advance. Note that a basic trendline extending off the 2018 low also converges on this region and further highlights its technical significance.
A break / close below this threshold is needed to fuel the next leg in USD/CAD with such a scenario targeting the October low-week reversal close at 1.2939 and the October swig low at 1.2782. Initial resistance now stands at the 1.32-handle with bearish invalidation now lowered to the outside high-week reversal close at 1.3370.
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Bottom line: USD/CAD is approaching a critical weekly support confluence at 1.3037/57 and we’re looking for a reaction in price on a drop into this zone early in the month. From a trading standpoint, a good area to reduce short-exposure / lower protective stops. Ultimately, we’ll be looking for exhaustion on a rebound in price to offer more favorable short-entries targeting a break of this key support barrier. Review my latest USD/CAD Price Outlook fora closer look at the near-term trading levels.
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USD/CAD Trader Sentiment
- A summary of IG Client Sentiment shows traders are net-short USD/CAD – the ratio stands at -1.34 (42.8% of traders are long) – bullish reading
- Traders have remained net-short since January 17th; price has moved 1.3% lower since then
- Long positions are 3.8% lower than yesterday and 15.7% lower from last week
- Short positions are 1.1% lower than yesterday and 8.8% lower from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/CAD prices may continue to rise. Traders are further net-short than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger USD/CAD-bullish contrarian trading bias from a sentiment standpoint
See how shifts in USD/CAD retail positioning are impacting trend- Learn more about sentiment!
Relevant USD/CAD Data Releases
Previous Weekly Technical Charts
— Written by Michael Boutros, Technical Currency Strategist with DailyFX
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