Canadian Dollar Outlook:
Canadian Dollar Outlook: USD/CAD Surges, Is This The Bottom?
A certifiably dovish Bank of Canada rate decision[1] sparked a formidable Canadian Dollar selloff on Wednesday, potentially shifting the longer-term outlook for the Loonie. Consequently, USD/CAD’s recent bounce off support around 1.3050 could mark a local bottom. Now, the pair is fast approaching the nearby 200-day moving average around 1.33 which could look to briefly stall a continuation higher.
USD/CAD Price Chart: Daily Time Frame (January – October) (Chart 1)
To that end, USD/CAD will look to capitalize on nearby support if consolidation is required. Immediate buoyancy will be provided by a horizontal trendline from September’s swing low around 1.3133, while the line in the sand remains slightly above the 1.30 level. Although the pair enjoys multiple zones of nearby support, they may not be required – especially if client positioning continues to shift.
Wednesday’s abrupt break higher saw a corresponding decline in clients with long exposure as evidenced in the chart above. With longs and shorts quickly approaching parity, continuation of the trend could see bears overtake USD/CAD bulls. While typically a contrarian indicator, a strong shift in positioning such as this suggests retail traders are becoming more confident in their prediction that USD/CAD is approaching overbought territory. Thus, if shorts overtake longs, it may suggest Wednesday’s rally marked the beginning of a change in trend that could see the Canadian Dollar forfeit weeks of gains as USD/CAD continues higher.
--Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX[2]
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