USD/CAD eyes a breakout as support and resistance converge

USD/CAD technical outlook and price chart

• Ongoing US dollar weakness supports bearish USD/CAD price action
• IG client sentiment (IGCS) positioning adds weight to further USD/CAD downside

USD/CAD pressing against trend resistance once again

The Canadian dollar’s appreciation against the US dollar has come to a halt and is now testing both trend resistance and horizontal support based off multi-month lows.

The downtrend has held firm in recent days, apart from a false breakout in mid-July, and price action over the next few days will decide the pair’s medium-term outlook. The chart shows a bearish ‘death cross’ was made on 22 July, when the 50-day simple moving average (SMA) - the green line on the chart - fell through the 200-day SMA (the black line on the chart).

Support for the pair is seen around $1.3314, the 10 June low, and the top of the old trading range that held sway until the late-February break higher. With the downtrend set to cut across this support level shortly, a breakout is expected to happen as the apex of the two lines nears.

IGCS retail trader data shows 66.30% of traders are net long, with the ratio of traders long to short at 1.97 to one. The number of traders net long is 1.37% higher than yesterday and 17.91% higher from last week, while the number of traders net short is 9.63% lower than yesterday and 28.84% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net long suggests USD/CAD prices may continue to fall. Traders are further net long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/CAD bearish contrarian trading bias.

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