USD/CAD FX Sentiment Hits Extremes as Pair Slips to Fresh 2016 Low

Talking Points:

– USD/CAD Retail Sentiment Hits Extremes as Pair Slips to Fresh 2016 Lows.

– USDOLLAR Holds April Low Despite Mixed 1Q GDP Report, Core PCE in Focus.

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USD/CAD

Chart – Created Using FXCM Marketscope 2.0

• USD/CAD may continue to track lower in May as it largely preserves the bearish trend from earlier this year and searches for support; would like to see the Relative Strength Index (RSI) push into oversold territory to favor a further decline following the failed attempts from earlier this month.


• Nevertheless, Canada’s Gross Domestic Product (GDP) report may temper the recent strength in the loonie as the growth rate is expected to contract 0.2% in February, while the annualized reading is expected to hold steady at 1.5% for the second-consecutive month.


• Downside targets remain in focus, with a break/close below 1.2510 (78.6% retracement) to 1.2520 (38.2% expansion) raising the risk for a move back towards the 1.2300 handle.

• The DailyFX Speculative Sentiment Index (SSI) shows retail FX remains caught on the wrong on the side market, with the crowd net-long since April 8, with the ratio pushing to fresh 2016 extremes going into May.


• The ratio currently stands at +2.13 as 68% of traders are long, with long positions 16.2% higher from the previous week, while open interest stands 12.1% above the monthly average.

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USDOLLAR(Ticker: USDollar):

Chart – Created Using FXCM Marketscope 2.0

• Despite the weaker-than-expected headline reading for 1Q GDP, the USDOLLAR bounces off the monthly low (11,784) amid the 1.9% expansion in Personal Consumption, while the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, marked the highest reading since the first three-months of 2012.


• With Personal Incomes & Spending anticipated to pick-up in March, a positive development may generate a larger rebound in the greenback as signs of stronger price growth put increase pressure on the Federal Open Market Committee (FOMC) to raise the benchmark interest rate sooner rather than later.


• The failed attempt to test the next downside targets around 11,745 (50% retracement) to 11,759 (23.6% retracement) may spur a move back towards 11,898 (50% retracement), with a break/close above the region opening up the next topside region of interest around 11,951 (38.2% expansion) to 11,965 (23.6% retracement).

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— Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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