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USD CAD Range Trade Idea – Upward Channel Prevails


Jun.04.2017

USD CAD Range Trade Idea: The US dollar got dumped across the board on Friday after the rather disappointing NFP report. However USD/CAD's volatility was maintained above the daily Ichimoku cloud and inside a prevailing upward channel. With that, let's conduct an IDDA to take a closer look at a USD CAD range trade idea.   I'll be sharing my personal investment strategy in our investing group

 

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1- Technical Points - USD CAD Range Trade Idea

Daily Time Frame:  The USD/CAD pair opened Monday’s Sydney session testing the upper band of the daily Ichimoku cloud. Meanwhile the Tenkan line crossed below the Kijun line after topping out at the 61% Fibonacci level retracing the 2016 downtrend, at 1.38. Despite all this, our USD CAD range trade idea stems from the upward moving channel the pair has been trapped in since May 2016.

 

USD CAD Range Trade Idea - Daily Chart Technical Analysis USD CAD Range Trade Idea - Daily Chart Technical Analysis

 

 

Supported by the upper band of the cloud, the pair is now consolidating inside an ascending triangle. This could be the calm before the storm if you will.

 

 

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Monthly Time Frame: The upward channel is easier to spot on the longer time frames such as the monthly and weekly charts. From the monthly point of view, the pair remains above the thick Ichimoku cloud, as it slowly moves to complete a double bottom chart pattern which has been in the process of formation for 10 years. That's really old stuff we're talking about here. But it's still important to keep the big picture in mind.

 

USD CAD Range Trade Idea - Monthly Chart Technical Analysis USD CAD Range Trade Idea - Monthly Chart Technical Analysis

 

2- Fundamental Points

The second point of the IDDA suggests looking at the economic and political developments that could impact the currency pair.

US Side: Friday's Non-farm payrolls report was rather disappointing, which got Ms. USA dumped by traders across the board. The  US  economy added  only 138,000 jobs in May, down from 174,000 in April and below analyst predictions of 185,000 job.

Additionally, wage growth actually slowed in May since average hourly earnings increased by 0.15% ($0.04) to $26.22 in May versus the 0.19% ($0.05) to $26.18 in April.

On a more positive side, the jobless rate improved for the fourth consecutive month by ticking even lower to 4.3%. This is great because the consensus was for the jobless rate to hold steady at 4.4%. Even better, the 4.3% reading recorded in May is the lowest reading since May 2001.

 

 

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However, the lower jobless rate isn’t actually all that great since the labor force participation rate dropped from 62.9% to 62.7%. This marks the second consecutive month of readings in red, as well as the worst reading in five months.

All-in-all, the May NFP report looked mixed on the surface. However, a closer look at the details paints a rather negative big picture. Despite this, odds for a June rate hike remains high, according to the CME Group’s FedWatch Tool.

 

Coming up: US ISM Services/Non-Manufacturing Composite (MAY) released on Monday at 2 PM GMT.

 

Oil: We look at oil prices when analyzing Canadian dollar crosses, because Mr. Loonie correlates to oil. When oil prices drop, so does Mr. CAD.  So what's been going on?

 

U.S. oil production is once again booming.The resilience of American producers underscores how OPEC has struggled to adapt to U.S. oil supply that can be quickly tapped as it becomes profitable to pump. Saudi Arabia tried unsuccessfully for two years to wash high-cost U.S. producers out of the market by letting prices drop. The top OPEC exporter then coordinated a 1.8 million barrels a day output cut among two dozen countries, but was forced during the most recent OPEC meeting to extend the deal because it failed to shrink global stockpiles, all because of the resurgent U.S. production.

 

Problem is, this plan doesn’t encourage price stability. Unless OPEC presents some kind of exit strategy, market players will price in an oversupply in 2018 and maybe for oil to return to its $30/barrel prices. Which could take CAD prices down with it.

 

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Canada:  Canada’s economy grew at an annualized rate of 3.7 per cent during 2017's first quarter as consumer spending more than made up for a slide in exports.

April's jobs report painted a mixed picture, as Canada's unemployment rate dropped to its lowest level in nine years, but there were 22,500 fewer youths aged 15 to 24 in the workforce than there was a month earlier.

Job quality has also declined, as full-time jobs fell by 31,000 and part-time jobs rose by 34,000.

 

Coming up: Canada's jobs report for the month of May, released on Friday June 9th at 12:30 PM GMT.

 

 

 

 

3- Market Sentiment

Market sentiment analysis is the 3rd point of the IDDA. We typically take a contrarian view to crowd sentiment. Retail trader data shows 57.3% of traders were net-long USD/CAD by the end of Friday. The fact traders are net-long suggests USDCAD prices may continue to fall.

However, positioning was less net-long than Thursday but more net-long from the week before. The combination of current sentiment and recent changes gives us a further mixed trading bias, which could back up our USD CAD range trade idea.

 

USD CAD Range Trade Idea - Strategy

As 4th point of the IDDA, you must calculate your risk tolerance before deciding on which trading strategy is suitable for your portfolio. We normally do not recommend trading without three or more confirmations of a specific direction from technical, fundamental and market sentiment points of view. Join us in our strategy development room by becoming a member of our investing group to learn more.

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Disclaimer: Forex is one of the HIGHEST risk investing instruments there is. If you don't have sufficient risk tolerance to trade forex, you can try investing other online securities.

 

Combining all points of the IDDA, here are Invest Diva's calculations for important approximate levels to keep an eye on.

Support Levels Turning Point Resistance Levels
1.30 1.3315 1.35
1.3154 1.34 1.38

 

 

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