USD/CAD recovered higher from trendline support in early day trading today and was boosted by a drop in oil prices during the North American session.
A rising trendline that originates from a low posted on July 28th has been in play and held USD/CAD higher on the drop that followed Friday’s US CPI data. The pair retested the trendline shortly after this week’s open and several dips throughout the day were held higher by the same trendline.
WTI crude oil prices rallied in the early day but turned sharply lower after a testing the halfway point of the decline from Thursday’s high to Friday’s low. The drop that followed from the 50% retracement carries momentum behind it and has taken oil prices (USOIL) below a rising trend channel that has encompassed price action from the June low.
The technical break in oil prices points to a potential reversal of trend and hints at further upside for USD/CAD.
Resistance at 1.2720 has been a hurdle for the pair and a marginal breach last week was not sustained. A breakout appears imminent as the rising trendline support and horizontal resistance have created an apex in price action.
A bullish breach shows the next upside target for the pair at 1.2832. A breakdown below the trendline shows the first level of support at 1.2654. The level fell near the rising trendline on Friday and had held price action higher following the US CPI data release.
The CFTC released COT data on Friday and a notable shift was seen in the loonie. Non-commercials increased their bullish bets by slightly more than 50% on a week over week basis. There was an acceleration in the pace bulls have been adding to gross longs while bears were seen continuing to scale back.
The net long loonie position is at the highest since early 2013 and is considered to be extreme. A sustained break above 1.2720 could lead to a short squeeze.