In this series, we scale-back and take a look at the broader technical picture to gain a bit more perspective on where we are in trend. The Canadian Dollar has been under considerable pressure for the past three weeks (USD/CAD higher more-than 2% month-to-date) with price now testing a critical resistance confluence ahead of the Bank of Canada rate decision on Wednesday. Here are the key targets & invalidation levels that matter on the USD/CAD weekly chart.

USD/CAD WEEKLY PRICE CHART

(Click on image to enlarge)

Notes: USD/CAD broke above 2016 pitchfork resistance back in June with price rebounding off this same slope into the start of October trade. Initially, the move looked like a breakdown in price – we were wrong! The subsequent recovery fueled a three-week rally with USD/CAD now approaching a critical resistance barrier at 1.3130/55- a region defined by the yearly high-week reversal close, the 61.8% retracement of the June decline and parallel resistance (red). Note that weekly RSI is also testing a resistance trigger extending off the yearly highs in momentum.

A breach/close above this threshold is needed to keep the long-bias viable with such a scenario targeting the 50% retracement of the 2016 decline at 1.3376 backed by 1.3647/86. Initial support rest with the monthly low-week close / 200-week moving average at ~1.2939/70 backed by the 52-week at ~1.2860s and a more significant confluence at the 100% extension at 1.2728.

Bottom line: USD/CAD is testing Big resistance here at 1.3130/55 with the immediate long-bias at risk while below. Keep in mind the Bank of Canada interest rate decision is on tap this week with markets already pricing in a 25basis point hike to 1.75%. From a trading standpoint, a good spot wind down long-exposure and raise stops. I’ll be looking for a reaction at this key resistance barrier, initially for a possible exhaustion/fade opportunity- watch the weekly close here for guidance.

USD/CAD TRADER SENTIMENT

• A summary of IG Client Sentiment shows traders are net-short USD/CAD - the ratio stands at -1.66 (37.6% of traders are long) – bullish reading
• Traders have remained net-short since October 9th; price has moved 1.1% higher since then
• Long positions are15.1% higher than yesterday and 5.4% higher from last week
• Short positions are 9.2% higher than yesterday and 19.9% higher from last week
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/CAD prices may continue to rise. Yet traders are less net-short than yesterday but more net-short from last week and the combination of current positioning and recent changes gives us a further mixed USD/CAD trading bias from a sentiment standpoint.