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Talking Points:
- USD/CAD Technical Strategy: The Correction Is Here, Awaiting Base to Buy
- 1.4140-1.4200 Zone of Support Worth Focusing on for ‘Dip Buying.'
- US Dollar Strength in Question & Worth Watching
The air is coming out of the USD/CAD bubble. However, we should be aware that we are still above key support such as the 21-DMA. A lot of the move higher in the Canadian Dollar today is supported by two key themes today. First, Oil is seeing a bit of a turnaround today, although the sustainability of such a move higher in Oil is in questions, but not out of the picture.
Second, the Bank of Canada threw cold water on the traders that were too eager to sell the CAD based on perceived easing by the Bank of Canada. This announcement has led to a repositioning across the market in CAD whereas those who were holding short-CAD positions on now apparent false hopes are exiting their positions.
The zone of focus for support now sits at the 21-dma at 1.4141 up to the top of the proposed wave ‘I’ 1.4186. A sustained move higher would turn the focus toward ST resistance at 1.4440 and 1.4540. A break above that 100 pips zone of resistance would turn attention back toward 1.4700. Given that the macro picture does not change in a day, it is hard to say the trend is over.
When looking at sentiment, Crowd Sentiment Extremes Have Lessened on USD/CAD, which shows that traders don’t think USD/CAD is as overbought as they once did. On the sentiment chart below, you will also notice that there are the fewest number of USD/CAD bears since early December. We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are short gives a signal that the USDCAD may continue higher.
USD/CAD Speculative Sentiment Index as of 1/20/2016
T.Y.
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