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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.

This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. See our Summary Conflicts Policy, available on our website.

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