USD/CAD falling towards support as sentiment stretches further

The US dollar continues to weaken against its Canadian counterpart and is currently making a fresh seven-month low.

USD/CAD technical outlook

  • Retail traders remain bullish on USD/CAD
  • USD/CAD unable to make a clean break of trend resistance

The latest IG client sentiment (IGCS) report shows that retail traders continue to buy USD/CAD despite the price falling further.

Retail trade data shows that 72.9% of traders are net long, revealing a long-to-short ratio of 2.69 to one. The number of traders net long is 11.95% higher than yesterday and 29.30% higher from last week, while the number of traders net short is 16.44% lower than yesterday and 5.44% higher from last week.

We take a contrarian view to crowd sentiment and the fact that traders are net long, and increased those positions recently, gives us a stronger USD/CAD bearish contrarian bias.

It should be noted the gap between price and trader positioning is now hitting multi-month extremes, adding a layer of short-term caution.

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A look at the daily USD/CAD chart shows that trend resistance off the March 2019 continues to be respected as it guides the pair down towards prior support at $1.2952 and a complete retracement of this year’s rally.

As price action nears the apex of trend resistance and support, volatility is expected to increase further as the pair make a decision to break lower or to break resistance and move higher. The moving average set-up highlights the negative sentiment in the pair with USD/CAD below all three, while a bearish 50-day/200-day crossover in late July added further credibility to the move lower.

There has been short-term support around $1.313 which has held in the past two weeks and a break and open below this level would suggest $1.30 or lower.

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