Global financial markets had a volatile week at the beginning of December. Risk appetite declined in the first half of the past trading week amid geopolitical concerns, forcing major stock indices to retreat from all-time highs. The U.S. Dollar was sliding versus majors as well. However, positive news from the Non-Farm Payrolls report brought the risk-on sentiment back to the markets. U.S. stock equities recovered all of the previous losses, closing the week near historical highs while the greenback regained just part of its mid-week losses. The Dollar’s rally was not smooth on Friday as major currency pairs had a mixed bias. I picked USD/CAD for this week’s Technical Take as the pair charted an interesting performance.
In general, the Loonie reflected the overall market’s sentiment in terms of the greenback’s demand/supply ratio. The screenshot below shows this year’s performance of the U.S. dollar index compared to USD/CAD. The Canadian dollar was strengthening for 3 days out of 5 last week, driven by the price of Oil, which was recovering from previous losses, and optimistic expectations for the US employment report. However, the Canadian economy disappointed speculators, the greenback rallied on the back of a strong NFP. Also Bank of Canada Governor Poloz announced his resignation surprisingly. As a result, currency traders forgot about the rising price of Oil, and USD/CAD surged +0.60% in one single day, recovering most of the previous losses and charting a long downside shadow on the weekly timeframe.
The weekly chart setup below has all three indicators developed by Larry Williams. Here are some of the observations. First, the recent candle was in the red, which caused a bearish fractal to appear above the last green candle. That might signal a bearish reversal. Second, the Alligator is sleeping as all three lines are stretched out. This points to the indecisiveness of the market players. Third, Williams %R oscillator is slightly bullish but there is no clear signal at the moment. The combination of those factors makes me think that USD/CAD will not get out of the recent range between 1.3150 and 1.3350 in the week ahead.
Another weekly chart setup has three powerful indicators, and they show the same technical picture. Ichimoku Cloud turned bearish 10 weeks ago as the leading span performed the bearish crossover. However, the pattern was not complete yet as weekly close rates and Ichimoku Base Line did not come out of the cloud. So we have uncertainty with the horizontal support at 1.32237. Next, the Average Directional Index has a very low positive surplus and the main line is far below the threshold. That points to the weak momentum. Finally, MACD is mixed as well. The histogram turned positive but lines are placed below 0, although they had a bullish crossover. Conclusion – consolidation range again.
The daily chart below should help to have a closer look inside the sideways range. We have here a horizontal resistance line equal to the highest daily close rate in the range – 1.33376. Bollinger Bands (modified period 21 days!) has the upper line coming at 1.33320. Next, Thursday’s close did not breach the lower line of the Bollinger Bands indicator, allowing us to draw a local bottom at 1.31752. The BB support line might start shifting upwards because of Friday’s rally, which was limited by BB middle line (1.32582). So the daily rate remained in the bearish channel. Sensitive Stochastic RSI confirms the bearish sentiment. What is worth noting is that the oscillator’s lines did not cross each other yet and even kept the general direction south.
That makes me think that the bears did not finish their job of pushing USD/CAD towards the lower band of the range. If Oil continues rallying in the week ahead, and daily close rate breached the local bottom, then we’d see another test of 1.30556, the low charted on October 28. Otherwise, the bulls might lift the pair towards the local resistance mentioned above. Best wishes this week traders!!
This post is contributed by MyFxLab. MyFXLab provides daily technical analysis written by professional traders. The site was founded by former Goldman Sachs FX traders and executives from some of the world’s largest brokers.
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