CAD Technical Analysis

Talking Points:

• USD/CAD Technical Strategy: Focus on Support at 1.2830
• Short-Term Resistance Sits near 1.3080-1.3150
• 38.2% Fibonacci Resistance Near1.31

The Canadian Dollar broke out of its 4-month rising impulsive channel rather aggressively. This drop brought about a 600 pip decline from the late September high of 1.3457 to a current corrective low of 1.2833.

This is the lowest level since the Bank of Canada surprised markets with a rate cut and USDCAD went from ~1.21 to 1.3450 in short order. Since then, Oil has regained some footing and if you remove the 8-most volatile components of Canadian CPI, we’re over 2%. Additionally, we’ll have the Bank of Canada and PM elections that will likely spark volatility in the Loonie.

While we are moving higher off the recent 1.2832 low, resistance is near. Short-Term resistance is setting up around the 38.2% Fibonacci Resistance around 1.31 from the decline that started at 1.3457. Because price broke below 1.2950, the confidence of the longer-term uptrend is quickly waning. Price action around resistance will be imperative to grabbing the feel for this pair during this data heavy week.
Two complementary markets to USD/CAD is the WTI / US Oil and the US Dollar. A higher US Dollar favors a higher USD/CAD while higher US Oil favors lower USD/CAD. To get a feel for the next hundred pip move on USDCAD, looking to these markets would be helpful. First, if US DOLLAR holds recent Bearish Key Day Resistance of 11,970 and US Oil can hold support of $43 before moving higher, then the breakdown from the 4-month rising wedge is likely just getting underway. On the other hand, if Oil is about to take another leg lower, (not the author’s view) we could be setting up for another test of the 11-year high at 1.3457. T.Y.



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Our preference: Long positions above 1.305 with targets @ 1.318 & 1.322 in extension.Alternative scenario: Below 1.305 look for further downside with 1.2985 & 1.293 as targets.Comment: Even though a continuation of the consolidation cannot be ruled out, its extent should be limited.

Talking Points:
-USD/CAD Technical Strategy: Looking To Sell Rallies
-RSI (5) Continues To Print Lower Highs
-61.8% Fibonacci Resistance Of Recent Move Lower
USD/CAD is positively correlated to the US Dollar. A positive correlation means they move roughly in the same direction. Therefore, a clear understanding of the technical direction and outlook of one can help you with the other. As usual, getting a clear reading will not be easy. To complicate matters, both USD/CAD & US Dollar are inversely correlated WTI US Oil, so they move roughly in opposite directions. As you can imagine, the direction of oil is very important to multiple economies yet you can get a handle on what the next move will be for oil.

Below, you will notice the USD/CAD chart with a rising wedge pattern. The rising wedge pattern is a topping pattern that signifies weakness over time and favors a strong reversal. From the 2015 high, price broke down nearly 600 pips toward the mid-March highs. However, notice that the retracement has run out of steam at 61.8% Fibonacci resistance recent move lower. The 61.8% retracement is a popular zone for a deep countertrend move before resuming in the direction of the impending larger trend. The real tell will be if the 61.8% retracement holds in price breaks down below the recent lows of the March high near 1.2830.

The recent strength of the US Dollar has been a key driver for this pair. However, with the US Dollar facing key long-term resistance and WTI US Oil may be forming a basing pattern, USD/CAD may finish the year with strong moves. Because traders are more concerned with risk: reward as opposed to divining the future, the downside is favored, and stops would be brought to breakeven on a break below the March high and October low at 1.2830. T.Y.


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Talking Points

• USD/CAD stalls at Fibonacci retracement
• Important long-term timing towards end of the month

USD/CAD: Second Half of November Is What Really Matter

The second half of the month looks pretty important for USD/CAD from a timing perspective. It marks the 38% retracement of the time elapsed between the May low and the September high. It also marks the 50% retracement in time of the 1974 low and the 2002 all-time high. There are some other things around the latter part of the month as well, but those two are the big ones. Generally speaking with such a convergence of important timing relationships I would be looking to fade the trend leading into them. It applies here as well, but my question is in which direction will USD/CAD be trending come late November?

Today marks an intermediate-term cycle turn window. In simple speak if we are going to get another leg down into the more important turn window in the second half of the month then this is where it should probably materialize. If USD/CAD just keeps pressing higher, then the odds go up in my book for a high of some importance later in the month. Seasonal tendencies would seem to favor the former as they are pretty negative on CAD for much of the remainder of the year, but let’s see if the price action corroborates first.

Piecing together short-term cyclical relationships with long-term dynamics is always a risky proposition (i.e. more likely to get it wrong). However, this set up looks a little clearer than most and is worth watching closely. A daily close over 1.3320 would invalidate the intermediate-term window and focus attention higher into the latter part of the month, while a move sub 1.3120 would open the door to a decline into this time frame.

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Talking Points

• USD/CAD nears important timing test
• The 1.3460 area remains critical

USD/CAD: It’s Showtime

There is some seed of doubt as to how tight this timing window should be. I generally like to give the market up to three trading days to respond to long-term timing elements. That would throw us into Monday. Continued strength past Monday under normal circumstances would invalidate the potential negative cyclicality. Where the doubt comes from is the proximity of another decent turn window late next week as it marks the 61.8% extension in time between the last year’s July low and this year’s May low (among other things). There is a very real possibility that this just marks one larger week long turn window or that USD/CAD could just “ping pong” between the two. First things first, let’s see how USD/CAD responds over the next few days. A clear price action failure around 1.3460 would be enough to turn me negative on the exchange rate, while strength after Monday over 1.3460 will force a bit of a reassessment heading into the second half of next week.

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Talking Points:
-USD/CAD Technical Strategy: Waiting To Sell If Support Breaks
-Looking to Bounce In WTI Crude Oil for Directional Cues
-US Dollar Also Providing Support for USDCAD, Break below Support Opens USDCAD Downside
A clear theme closed out the week. The theme was outperformance for most commodity-based currencies. Typically, commodity currencies are economies like Australia, New Zealand, and many Emerging Markets like the Russian Ruble, South African Rand or Mexican Peso. Of course, the Canadian Dollar counts among the ranks of Major currencies with a reliance on Oil as they are the 6th largest oil producer in the world. However, the Canadian dollar diverged from currencies above this week in relation to relative performance vs. the US Dollar.

Currencies like the South African Rand closed up over 3% while the Australian Dollar is looking to close up on the US Dollar by 1.5%, but the Canadian Dollar ended the week nearly flat. One of these markets are telling the truth about what’s to come in FX, and another is not. Unfortunately, the answer isn’t exactly clear about who to believe right now, but US Dollar Index strength currently favors that USD strength could continue.

This week proved once again that the Canadian Dollar appears uncomfortable around 1.3400. Whether that is due to underlying CAD strength or waning interest in the US Dollar at these levels is hard to say. The latter appears favorable as many CAD crosses look distinctly negative. However, it’s difficult to encourage a trade against the larger uptrend until we break key support of 1.3222/25 that houses the November 12th low and the 55-dma near 1.3190, which USDCAD tends to respect for large directional bias. Additionally, a break above short-term resistance at 1.3349, the November 13th and late August high could signal that an attempt on the late September and YTD high of 1.3456 or higher.

The Canadian dollar wasn’t without reason by ending the week roughly flat vs. the US Dollar. Given the positive correlation between WTI Crude Oil price, the fact that WTI dropped to near $40 trading at its lowest price since August 27th and Oil is heading for its 3rd straight week of losses, it makes sense that CAD is under pressure. However, if either the US Dollar is about to fall or the other currencies mentioned above are telling a story about what’s to come for Commodity Currencies like the Canadian Dollar, then the USDCAD sell is a bargain. However, the data isn’t quite there. A daily price break and close below the RSI(5) trendline support, as well as price breaking below the first level of support, mentioned at 1.3222, would help to validate the view that further downside is likely. Until then, we’ll sit tight while we see whether the Canadian Dollar or other commodity currencies are telling the truth about what’s to come.


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Talking Points:
-USD/CAD Technical Strategy: Waiting To Sell If Channel Support Breaks
-Looking to Bounce In WTI Crude Oil for Directional Cues
-US Dollar Currently Providing Support for USDCAD, Break below Support Opens USDCAD Downside

The US dollar continues to struggle within a corrective channel, which is letting CAD gain ground. We recently commented how the Canadian Dollar has been diverging from other commodity currencies like the Australian dollar as the leader so far for the month. This development of divergence is interesting as USDCAD has been unable to hold above 1.3400. Within 1.34/3500 was the price range with which USDCAD printed the year to date high. The year-to-date high was 1.3456. Because reversals have a the propensity to develop around the price range of an extreme day and the 2015 extreme day price range was 1.3370-1.3456, The recent turn has us on alert as US Oil bounces off support. I would add to this what makes this more interesting is what is happening with oil today after the Turkish downing of the Russian plane in addition to the Saudi Arabia comments yesterday that propped up oil prices. Given the positive correlation between Oil strength with CAD strength, these geopolitical developments align with us pulling off 1.3400 resistance on USDCAD and support on US Oil.

While we cannot confirm a top yet, there are a few things to look on the charts that could signal that we potentially have a turn. First, we can look to a turn in the oscillators as the daily RSI (5) may be soon breaking trendline support and we see a similar move on oscillators like the Daily Slow Stochastics. Additionally, price breaking below 1.3222, the first key level of support may align with the fundamental environment for Oil strength. The additional Intermarket environment that would align with a USDCAD breakdown would be further dollar weakness through current support at 12,130/12,208. Regarding resistance, we are currently below an equal wave move higher off of the October 15 low, which is around 1.3477 and the high of the current November high that fell just short but with an interesting shooting star Japanese candlestick pattern. The shooting star formation is a potential topping pattern so that we can look to a subsequent price support break alongside a stochastic breakdown

Wedge price support sits in the 1.3270/1.3222 zone. A break and close below this level could allow USDCAD to join rank with other USD/Commodity Currency pairs that have seen nice gains against the US Dollar. The first downside target is the November low of 1.3036, followed by the October low or 1.2831. Naturally, a price break into new year-to-day highs would put a bearish USD/CAD trader on pause as until the clear price support breaks because the risk of an aggressive move higher could be in store. There is a lot of support that is currently holding up price such as the 21-day moving average, presently at 1.3244. A break below this indicator could convince traders that the party is over in USDCAD for the time being. For now, the chart shows the significance of the price Channel (blue) drawn off October 9th,13th, & 15th pivots. If price breaks below channel support aligned with an affirmed breakout in US Oil would make the argument for a breakdown toward support levels on USDCAD.

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Talking Points

• Timing window coming to an end over next few days
• 1.3460 area remains important pivot zone

USD/CAD: Big Test Upcoming

USD/CAD is at an important inflection point in time. As noted a few weeks back, the second half of last week had some important timing relationships including the 50% retracement of the time between the 1974 low and the 2002 all-time high and the 38% retracement of the time elapsed between the May low and the September high. The second half of this week is the 61.8% extension in time between the last year’s July low and this year’s May low as well as the 100% time projection of the March – May decline as measured from the September high.

Normally I would treat these as two separate potential turn windows, however, their proximity to each other leads me to believe they should probably be treated as one big one. A cyclical technique that can be used when this type of situation arises is to interpolate or focus on the mid-point between the two. Interestingly this actually coincides with the Monday’s high. We’ll see. I am open minded here especially with the approach of the Thanksgiving Holiday in the US. Turn windows that coincide with regional holidays usually need some extra attention with the thinner liquidity.

As far as levels go the 1.3460 area remains the zone to watch. Obviously it is where the market stalled out in September but it marks the 61.8% retracement of the all-time high recorded in 2002 and the all-time low recorded in 2007 as well as a golden mean rhythm ratio of 48.6% off the low from 2007. A failure around this zone would set up a pretty clear potential double-top. I could even see 1.3460 break convincingly and the fail leading to reverse symmetrical triangle top. Timing remains the key variable.
Bottom line a failure over the next few days somewhere around 1.3460 – 1.3500 followed by a clear change in behavior (i.e. break of support) would signal to me that a turn of some significance is underway while continued strength past the first part of next week would signal a much more powerful move higher is unfolding.

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Talking Points:
-USD/CAD Technical Strategy: CAD Weakness Not Worth Fighting

USD/CAD proved resilient for longer than most currencies against the US Dollar, but much like the strongly negative correlated US Oil Market, CAD could only hold on to support for so long before breaking. As Crude Oil fell through the August 24th low after OPEC announced they would raise their production output in an already saturated market, the Oil-reliance Canadian Dollar fell to multi-year lows against the US Dollar trading above 1.3500. Added to the frustration of lower Oil prices was the disappointing Canadian jobs data on Friday on the same day that the better-than-estimate U.S. employment data seemed to seal the fate for a rate hike on December 16th. Today’s move marks the strongest open/close range since October 21st, which kicked off the aggressive march higher that we’re now running. Now, we have a strong dollar, weaker US Oil, and we may hear from the Bank of Canada that they’re more willing to cut rates if the price of Oil continues to decline. Such a scenario (not a forecast) would only push this train further to the upside and likely toward the 1.3700/1.4000 handle.

Now that USD/CAD is trading north of 1.3500, the preference is to buy dips on a move toward 1.3700/1.4000. The prior 2015 high of 1.3456 will act as weak support, but more preferential would be the Weekly Pivot of 1.3280. In the strongest uptrends, the Weekly Pivot and Weekly S1 Pivot level tend to act as strong support. The Pivot of 1.3280 also aligns with late November price support before the latest launch into new 11-year highs. Shorter-term traders looking for support above the Weekly Pivot can turn their attention to the November 30th and November 16th high of 1.3393 and 1.3371 respectively. Traders may find that these level that were acting as resistance before Monday's breakout could act as good support to buy with a better risk: reward ratio moving forward.

Trader sentiment is very telling in the current environment as is the spread in sovereign 2-year yields that are currently above 30bps, which favors USD strength to continue. Additionally, while the US Dollar is no longer the king of G10 as it used to be (that honor currently goes to the Australian Dollar), the Canadian Dollar is currently the weakest of the G10 when measured by occurrences below the 200-period moving average across all major currencies on a 4-hour chart. A lot of the weakness has to do with the story of Oil above, but there’s one last measure that could keep USD/CAD moving higher. Trader sentiment as measured by our Speculative Sentiment Index on USD/CAD stands at -2.72 as 27% of traders are long, and that is the most one-sided sentiment view from the G10 at present.


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Talking Points:
-USD/CAD Technical Strategy: Stay With Trend Above 1.3456
-USD/CAD Has Been Pushed Higher As WTI Crude Oil Prints 6-Year Lows

USD/CAD punched higher to new 11-year highs and looks poised to close in on the 2004 high of 1.3908. There is a lot of doubt surrounding the US Dollar going into December 16, the date the Federal Reserve is presumed to announce a rate hike and lay out the requirements for subsequent hikes. Though it may appear tempting to sell USD/CAD at 11-year highs in hopes of catching a retracement at the turn, please note that there is a handful of factors working against the CAD right now. First, the CAD is quickly becoming the short du jour because of the CAD’s correlation to Oil. The current 3-month correlation of USDCAD to US Oil is -0.83, which is highly significant. In addition, to energy’s direction pushing USDCAD higher, the recent leg higher in USD/CAD has happened alongside a seasonally weak US Dollar in December. Should the US Dollar strengthen on upcoming event risk around the expected Fed rate increase, we could hit upside targets in a hurry.

Levels:
Through much of November, we discussed the importance of the extreme day price range of USD/CAD on September 29 of 1.3346-1.3456. That 90-pip range acted as strong resistance until December 7th. December 7th was the same day US Oil broke below the August 24th low (see correlation above). Since then, USDCAD has continued to move higher, and the momentum isn’t slowing down. This acceleration higher in USDCAD is happening as US dollar is working lower in a corrective channel toward the 100-day moving average at 12,140. Utilizing the September high as new support, we can remain patient to look to either buy dips or hold off on trying to 'sell-the-top' as price could extend past the 2004 high of 1.3900 if Oil doesn't turn.

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