USD/CAD Talking Points:
- Smart money positioning shifts to net-short
- WTI drop, Omicron and the Fed funds futures whipsaw
- USD/CAD intra-day trading setup as bullish channel comes under pressure
Smart Money Bets Against CAD as Oil Drops
The most recent (Nov 23rd) commitment of traders (CoT) report issued by the Commodity Futures Trading Commission (CFTC) reveals that speculative positioning (mainly hedge funds) has turned net short with respect to CAD. The shift in sentiment has been coming and could reflect a view of continued lower oil prices and a USD recovery. It bears mentioning that the same report revealed positive (long) net positioning in the US dollar although this does appear to be declining somewhat.
USD/CAD Long, Short and net Speculative Positioning with USD/CAD (inverted)
Source: Justin McQueen , Refinitiv, CFTC
USD/CAD Technical Analysis
The USD/CAD daily chart exhibits a rather peculiar pattern but nevertheless, there are a few noteworthy levels of interest as we head into some high impact economic data this week and next as US and Canadian employment data is released and the Bank of Canada provides its latest interest rate decision.
For information on major event risk, take a look at DailyFX’s economic calendar
The 1.2830 continues to provide an unsurmountable level of resistance as the recent bounce off this level can attest to. Despite the recent drop in Brent crude and WTI prices, USD/CAD actually fell as fear of the relatively unknown Omicron resulted in rates markets pricing in a slower rate of Fed hikes for 2022 – bearish for the already propped up US dollar.
It must be noted that markets have become extremely reactive and news dependent as more information around the new variant surfaces. With this in mind, the 4-hour chart (discussed below) highlights an interesting setup.
USD/CAD Daily Chart
Chart prepared by Richard Snow, IG
The 4-hour chart highlights the degree of bullish persistence since the November low as price action continues to trade within a bullish channel, having already respected the lower bound of the channel twice and potentially making a third attempt. The stochastic oscillator may provide further insight into potential oversold conditions in the coming hours. A bounce off the lower bound could see a move back towards 1.2800 and possibly even the 1.2830 level.
Much of this move depends on the dollar and WTI prices which need to be monitored as this unfolds. Tomorrow marks an important day for OPEC+ nations as they are set to meet to discuss recent special petroleum reserves releases and potentially lower demand for the commodity as a result of Omicron-induced travel restrictions. The organization will then make a decision on whether it will continue to add 400,000 barrels per day in January next year.
USD/CAD 4-Hour Chart
Chart prepared by Richard Snow, IG
— Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
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