Top Story

USD/CAD rebound could be short-lived

The USD/CAD ended its bullish run abruptly on Friday as investors shrugged off employment reports from Canada (weak) and US (strong) and instead focused on a sharp rebound in oil prices. However, there has been no real follow-through in the selling pressure at the start of this week.

In part, this is due to a sharp rebound in the Dollar Index. The greenback has finally managed to catch a bid against the single currency as traders who had bought the EUR/USD pair in anticipation of Marcon’s victory in French elections, evidently took profit today. The GBP/USD has also weakened in the EUR/USD’s slipstream, while the USD/JPY has bounced back after a weaker open.

Another reason for the bounce in the USD/CAD has been oil prices which have fallen again despite on-going jawboning from Saudi’s oil minister, who has again spoken in favour of extending the OPEC productions cuts.

But despite the weakness in crude oil prices and US dollar’s bullish day, the USD/CAD could still fall back now that it is testing a key resistance area and after posting reversal-looking price patterns at the end of last week.

As can be seen on the chart, the USD/CAD reversed sharply on Friday to create a bearish engulfing candle on its daily chart. The resulting sell-off caused the weekly chart to print a doji candle, which is typically found at tops and bottoms of a trend.

If these technical signals are valid bearish signs then today’s bounce in the USD/CAD could be a trap for the bulls and present an opportunity for the bears to get on board at favourable prices.

In fact, the USD/CAD was testing a key short-term level around 1.3730 at the time of this writing. This level was the last support pre-breakdown on Friday (one can see this level on an intraday chart). Consequently, it could turn into resistance, leading to another drop.

However, if the USD/CAD doesn’t turn lower here and goes on to break above last week’s high then this would invalidate the bearish setup. In this potential scenario, the Loonie may rise to test the long-term 61.8% Fibonacci retracement level at 1.3840 as the next bullish objective, possibly ahead of 1.40 next. 

Source: eSignal and FOREX.com.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.