Canadian Dollar Outlook – USD/CAD Short-Term Consolidation After BoC Adjusts its Bond-Buying Program

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Canadian Dollar Price (USD/CAD), News, and Analysis:

  • USD/CAD stuck in a short-term range.
  • Retail sentiment shows traders remain long of USD/CAD.

The latest Bank of Canada (BoC) policy decision saw the central bank maintain its policy rate and forward guidance while trimming the number of government bonds it will buy to CAD 2 billion a week from CAD 3 billion. According to the BoC, this adjustment ‘reflects continued progress towards recovery and the Bank’s increased confidence in the strength of the Canadian economic outlook’. The central bank also acknowledged that inflation, 3.6% in May, is running hot but believed that while the ‘factors pushing up inflation are transitory’ they need to be closely monitored in the months ahead.

The multi-week rally in USD/CAD is likely set for a period of consolidation with a band of resistance between 1.2630 and 1.2650 unlikely to be troubled in the near term. The daily chart is showing a few mixed technical signals which cloud the outlook for the coming days. A series of higher lows from late May onwards remain intact, buoying positive sentiment, while the cup and handle pattern we have noted over the past few weeks remains in place, suggesting further upside. On the other side of the argument, USD/CAD is finding it difficult to make a clean break above the 200-day simple moving average (black line), while yesterday’s hanging man candlestick points to a potential short-term retracement. In the near term, a range between 1.2423 and 1.2593 looks likely to hold.

How to Trade Reversals with the Hanging Man Pattern

USD/CAD Daily Price Chart (October 2020 – July 15, 2021)

IG Retail trader data show 60.91% of traders are net-long with the ratio of traders long to short at 1.56 to 1.The number of traders net-long is 8.30% lower than yesterday and 0.85% higher from last week, while the number of traders net-short is 1.14% higher than yesterday and 4.52% higher 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.Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/CAD price trend may soon reverse higher despite the fact traders remain net-long.

What is your view on USD/CAD – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

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