USD/CAD Analysis: Potential Retracement on Supply Area Contact

29 paź

The USD/CAD has recently moved into a key supply area, prompting a watchful stance for a potential retracement. According to the latest Commitment of Traders (COT) report, there’s a clear divergence between retail and institutional sentiment: while retail traders remain bullish on USD/CAD, institutional investors, or "smart money," have started building bearish positions, indicating a possible shift in momentum.

Seasonal Forecast and Technical View
Seasonal analysis suggests an increased probability of bullish price action in USD/CAD, but given our current position in a supply area, the focus is on a corrective retracement rather than a sustained reversal. This is especially relevant for short-term traders looking to capitalize on minor pullbacks.

From a technical perspective, USD/CAD’s proximity to supply suggests a temporary exhaustion of the recent uptrend, allowing for a pullback within a controlled risk-reward framework. A tight stop loss is recommended here to protect against potential reversals should bullish seasonal tendencies overpower short-term retracement forces.

Trading Strategy
With a setup offering a strong risk-to-reward ratio, traders might consider a short position on USD/CAD with a focus on the retracement rather than a deep decline. Monitoring economic releases and potential changes in institutional positioning will be essential in determining whether the supply area holds, as well as to gauge the sustainability of any bearish retracement.

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As the United States approaches its pivotal presidential election, the US Dollar (USD) is experiencing downward pressure. This uncertainty is impacting the broader market sentiment, leading traders to adopt a cautious stance. However, the upward trajectory of US Treasury yields may provide a buffer against further declines in the dollar’s value. Currently, the US Dollar Index (DXY), which gauges the dollar's strength against six major currencies, is trading around 103.80. At this moment, the yields on 2-year and 10-year US Treasury bonds stand at 4.17% and 4.30%, respectively, indicating investor confidence in longer-term government debt.

Turning to Canada, the Bank of Canada (BoC) is gearing up for its final monetary policy meeting of the year in December, where a significant rate cut is widely anticipated. BoC Governor has signaled the possibility of a reduction by as much as 50 basis points (bps). This potential lowering of interest rates could influence the Canadian dollar's valuation and the overall economic landscape.

From a technical perspective, the market shows signs of a bullish seasonal trend; however, the latest Commitment of Traders (COT) report suggests the potential for a price drop, particularly in alignment with identified supply zones. As we navigate through these evolving conditions, the outcome of the US election will likely have profound implications for currency movements and economic policies in the coming days. Traders will need to stay vigilant as these developments unfold, shaping market dynamics in both the US and Canada.

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