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Canadian dollar sentiment shift threatens USD/CAD trend reversal

Canadian dollar rallied 1% into the August open with USD/CAD eyeing key uptrend support at multi-month lows. These are the levels that matter on the technical charts.

Canadian dollar sentiment, price and analysis

  • Canadian dollar rallies to highest levels since February vs US dollar
  • USD/CAD trader long positioning waning- threatens immediate downtrend
  • Sell-off now approaching multi-year uptrend support

The Canadian dollar is attempting to mark a fourth weekly advance against the US dollar with USD/CAD down nearly 3% from the July highs. Waning sentiment suggests the immediate decline may be vulnerable in the days ahead as price approaches long-term trend support and we’re looking for a reaction in price just lower for guidance.

Canadian dollar trader sentiment: USD/CAD price chart

A summary of IG Client Sentiment shows that 59.39% of traders are net-long USD/CAD as the price drifts into multi-month lows. The number of traders net long is 13.65% lower than yesterday and a full 17.95% lower from last week while the number of trader net short is also lower on whole, down 8.6% from last week.

While we typically take a contrarian view to crowd sentiment, the recent shift in sentiment does highlight the near-term threat to the current downtrend despite the fact traders remain net long. Although the broader reduction in open interest does weaken the signal, the fact that the price is now approaching a critical support zone further heightens the risk for downside exhaustion in the days ahead.

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Canadian dollar price chart: USD/CAD weekly

A break below a key support pivot we’ve been tracking for months now at $1.3323/64 takes USD/CAD into multi-year pitchfork support extending off the 2017 lows. A weekly close below this threshold is needed to keep the short bias viable / suggest a larger trend reversal is underway witch such a scenario exposing the 61.8% Fibonacci retracement at $1.3057.

Bearish invalidation now lowered to channel resistance / May 2019 high-week close at $1.3515- a breach / close above this threshold would b needed to mark resumption of the broader uptrend.

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